Hollywood Accounting: How A $19 Million Movie Makes $150 Million... And Still Isn't Profitable

from the a-ham-sandwidch dept

We've written about the wonders of Hollywood accounting before. It's a series of tricks pulled by Hollywood studios to make most of their movies look unprofitable, even when they're making a ton of money. The details can be complex, but a simplified version is that every studio sets up a new "shell" company for each movie -- and that company is specifically designed to lose money. The studio gives that company the production budget (the number you usually see) and then also agrees to pay for marketing and related expenses above and beyond that. Both of those numbers represent (mostly) actual cash outlays from the studio and are reasonable to count as expenses. Then comes the sneaky part: on top of all that, the studios charge the "movie company" a series of fees for other questionable things. Many of these fees involve no real direct expense for the studio, but basically pile a huge expense onto the income statement and ensure that the studio keeps getting all of the movie income -- rather than having to share the profits with key participants -- long after the movie would be considered profitable under regular accounting rules.

Here's a hypothetical example of how this could work in practice, using round numbers just to make the point (these aren't directly accurate numbers, but the concept is). A studio funds A Movie with a production budget of $100 million. It sets up AMovieCo Inc. and gives it the production budget money. The studio then spends another $50 million on marketing and puts that down as an expense as well -- though, with some of the big studios, some of this money involves paying itself for advertising on its own properties. Still, even if we assume that's real money spent, you might think that AMovieCo now needs to make back $150 million to be profitable. But... the studio (which, again, controls AMovieCo completely) then tacks onto all of that, say, a $250 million "distribution fee." Now, while there may be some money spent on actually distributing the film, the number is almost completely bogus, and much higher than the actual expense for the studio. Very little actual money needs to change hands here -- it's just a fee on the books (a fee they are effectively charging to themselves). And it's not just "distribution" but a variety of additional charges. On top of that, the studio may then charge "interest" on that money, even though it's really just lending money to itself. What it all means is that rather than becoming profitable at ~$150 million (the actual money spent), AMovieCo now needs to earn over $400 million before anyone with a cut of the profits sees an additional dime from the movie, thanks to completely imaginary accounting entries on the books.

Over on Kevin Smith's (really, really, fascinating) Smoviemakers podcast, Smith recently interviewed filmmaker Scott Derrickson, who has made a name for himself in the horror film world. The whole interview is fantastic and well worth listening to, starting with part one. However, right at the beginning of part two, Derrickson reveals how he effectively got shafted on one of his most well known films, The Exorcism of Emily Rose.
Scott Derrickson (SD): It made $75 [million] domestic and $150 [million] worldwide...

Kevin Smith (KS): Nice. You're a true filmmaker, you know exactly what your movies made everywhere...

SD: Hellllll yeah.

KS: It's a badge of honor.

SD: And to all the young filmmakers listening, I had 5% of the net of that movie. That was in my contract. And it cost $19 million. And it made $150 million worldwide. There's no net. That's how movie math works.

KS: So even you were not above being screwed by the system.

SD: I told my attorney, the next time you're negotiating my net profit for a movie, ask for a ham sandwich instead.

KS: 'Cause you'll get something.

SD: 'Cause I'll get something [laughter]
Basically, it's the same story as always. The net doesn't exist... but because of the extra massive "fees" the studio tacks on, it makes back many times its money before it even has to go anywhere near paying the writer and director to whom it promised 5%.

Related to this, it comes as no surprise that later in the podcast, Derrickson talks about his recognition that the real future in movies is being able to make them much more cheaply, and outside of studio control. He talks about being influenced by the movie Monsters, which was made for a few hundred thousand dollars, but which he notes would have probably cost a studio $50 million to make. At that point, he realized that to survive in this business, he had to be able to learn to make movies much more cheaply:
SD: The other thing that was happening at that time, was I was watching the business change dramatically.... The movie that was a paradigm shift for me was the sci-fi movie Monsters. Have you seen that movie?

KS: Yeah, yeah, yeah.

SD: It's this great sci-fi movie where this guy, for $800,000 and his little barebones crew, with a small digital camera, made a movie that would have cost Warner Bros. $50 million to make.... He was one of the first of this new generation who grew up with his laptop. He did like 250 visual effects in the movie on his own laptop. And he made a $50 million movie for $800,000. I saw that happening. I saw what Jason Blum was doing with the
Paranormal Activity movies and I said, you know what, the business is changing and you gotta evolve or die. And so part of my interest in doing a movie so small is that I want to be a part of what's happening right now. And I want to be a front runner. I want to be good at it.
They then discuss his new movie, Sinister, which had a $3 million budget (which shocks Smith, who insists it looks like a movie that's much more expensive). Of course, in many ways, this goes back to the discussion we've been having here for many, many years -- responding to the old school movie studio guys, who demand that we answer how could they possibly continue to make $200 million movies. One answer, which we've pointed out time and time again, is that the question is the wrong one. Any business should be asking how it can make its product profitably -- not how it can keep its costs high. No one in the tech industry asks "how can we continue to make $5,000 computers?" They ask "how can we make profitable computers" and one answer is to make the product more efficiently. It's great to see filmmakers like Derrickson not just get that, but then celebrate what that means for him artistically and financially as well.
SD: I want what matters to matter to me.... Knowing that I had final cut in the movie, knowing that's what it was about, I've never had more fun or been more relaxed while making a movie, because I just wasn't worried about how it would do. I'm making this movie because when it's done I'm gonna see it.... I think a lot of filmmakers go through the experience.... you have that difficult studio experience.... you come out of that experience, and it's not just that 'if you die on a swords, it's gonna be my sword,' it's that thing that 'I'm going to make something that's 100% pure. I'm just going to make something 100% pure...'
In the last few years we've been hearing and seeing similar things from a number of filmmakers, recognizing that perhaps the challenges that the movie industry has faced have been self-imposed in large degrees. The industry got used to doing things one way and have had trouble adapting. But, of course, the actual artists and creators figure this stuff out and they adapt... even while the big studios still play their accounting tricks. And have no fear, with a movie this cheaply made, Derrickson notes that if the movie does okay, it could make him "rich" based on the way he structured the deal this time around. He teamed up with Blumhouse Productions (who backed Paranormal Activity) and while they're using a traditional distributor (which anyone still has to do for a real theatrical release), the economics this time around are quite different than for a film where a major MPAA studio is playing the usual accounting tricks.


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    Ninja (profile), Oct 19th, 2012 @ 7:49am

    Oh clever, to counter Hollywood account he's doing "Hollywood Accounting: Director's cut". This esteemed sir is doing it right!

    It's interesting to see that the artists are actively trying to route around the MAFIAA. It seems this will be their demise: becoming irrelevant both for artists and for their fans.

     

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      Scott, Oct 19th, 2012 @ 8:56am

      Re:

      I hope so

       

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      gorehound (profile), Oct 19th, 2012 @ 1:46pm

      Re:

      Hopefully !!!
      Why should anyone even care about their ripoff World.
      Find your own destiny and Fuck them.

       

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      lakawak (profile), Oct 19th, 2012 @ 4:36pm

      Re:

      Just because this guy (whose curent movie SUCKS, by the way) says that that is what he wants to do in the future does not mean he will be successful. Let's revisit this in or even 10 years and see just how many movies that have bypassed the studios have been even REMOTELY successful. And how many directors who have never made a studio picture are actually living off their movie earnings.

      The answer to both will be virtually zero.

       

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    Schwerin, Oct 19th, 2012 @ 8:58am

    This sounds like how big business works with Shared Resources. They pay themselves for their own work so that Company A makes profit off Company B even thought BOTH are owned by Master Company C.

     

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      jupiterkansas (profile), Oct 19th, 2012 @ 9:10am

      Re:

      Yep, welcome to corporate filmmaking.

      And I'm sure they just view the films as commercials for whatever toys and videogames they want to sell that make a better profit for them.

       

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      Anonymous Coward, Oct 19th, 2012 @ 9:23am

      Re:

      Moving money to tax shelters to avoid having to pay taxes in the countries they are earned in. It is exactly the same scam they are running in Hollywood to get to a lower or no-tax zone.
      Even though it is "illegal" it is essentially impossible to stop since the "services" sold between master company and puppet are not on the market and therefore cannot be prized independently. Not to mention the time it takes to find those in the books when investigating. It is completely immoral, don't get me wrong, but it is a fact of life. If you can get the government to pay you instead of the other way, every direct interessant in the "business" will be happy!

       

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      James Burkhardt (profile), Oct 19th, 2012 @ 9:52am

      Re:

      As an accountant, I can see how this works. I can see the reasonable rationale for this process (which I call micro-entity accounting). Done properly, it allows you to examine the profitability of various portions of your business. My boss runs several nightclubs and a 'nightlife' magazine which functions as self-advertising. THrough micro-entity accounting, the clubs pay for said advertising. We have found that in this senario, the clubs and outside advertising can not cover the magazines costs. It has allowed us to properly apportion advertising costs of the clubs to properly cover the magazines costs, so the magazine breaks even. That is how micro-entity accounting should work.

      However, they way Hollywood approaches micro-entity accounting is closer to how Enron and Worldcom pulled off their massive Accounting scandals. THey set up chell companies which absorbed huge losses while all the income was piped up to the master companies. The master companies showed a profit, while the shell companies died off. Eventually, that fact that they were hiding expenses using micro-entity accounting came to light. They collapsed. If the fees are accurate, Hollywood needs to streamline, because they are pulling an Enron. If they aren't accurate representations of the costs, then they are committing fraud. Either way, they are using Micro-Entity Accounting in ways that violate the principles of accounting.

       

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        Bengie, Oct 19th, 2012 @ 10:33am

        Re: Re:

        My question is how can Hollywood publicly claim a movie costed $19mil to produce and advertise, claim they made $150mil gross, then claim they had a net profit of $0 and not automatically get flagged for fraud?

         

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          James Burkhardt (profile), Oct 19th, 2012 @ 11:55am

          Re: Re: Re:

          Because no one has yet sued the studio for breach of contract to go before a court and prove it probably. There are only 3 times when accounting tricks like this get shut down:

          1) When an employee Whistleblower goes to the SEC/IRS/ect.

          2) When the company can no longer shuffle around debts and folds

          3) When someone who is harmed by it sues.

          Any other scenario is a variation of the above 3. Since they supposedly pay taxes on the income, and aren't actually losing money, 1 and 2 aren't likely to happen. Only in scenario 3 will the possible fact that the fees charged to the movie are excessively higher then actual costs.

           

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        ldne, Oct 21st, 2012 @ 4:56pm

        Re: Re:

        You forgot to mention one of the biggest benefits they're getting from this method, dodging their tax burden.
        By creating companies that make little money on paper they make companies that pay little in taxes too, since corporate taxes are based on net profit.

         

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    Scott, Oct 19th, 2012 @ 9:00am

    Same goes with YouTube,as far as YouTube poopers or other remixers instead of trying sue them give them employment instead

     

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    Anonymous Coward, Oct 19th, 2012 @ 9:02am

    You know, I caught Monsters (finally) a few weeks ago when I was home (wisdom teeth removed, I had two days off from work) and I thoroughly enjoyed it. In fact, I caught it multiple times on TV (because I missed the beginning the first time around).

    I can easily believe it was made for only $800,000. And despite that, it was more engrossing and entertaining than some of the more recent films I've seen (which had $100 million budges).

    Which goes to show one important thing. Quantity does not equal quality. You can have the biggest budget imaginable but it won't mean squat if you don't have a decent story. Explosions and CGI DO NOT a great movie make.

    Now, cue the trolls who come in on every Kevin Smith related bit to take shots at him. As well as the others who will come in to say, "Yeah this guy, the director, is a nobody. What else has he made? Oh, nothing." Or something to that effect. Yet, we, the usual people commenting here on Techdirt, are the ones who hate artists. [rolls eyes]

    And not a one will wag a finger or play the morality card regarding Hollywood accounting. They always manage to twist things around and blame the ones who sign the contract, as opposed to those who find ways to fiddle with the contract to cheat the ones who signed it.

     

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      jupiterkansas (profile), Oct 19th, 2012 @ 9:15am

      Re:

      Budget has never had anything to do with quality, just like box office has nothing to do with quality.

      Unfortunately the press keeps reporting weekly box office like filmmaking is a winner/loser game - the implication being if a movie makes money it's good, and if it loses money it's bad.

      It's nothing the average moviegoer should care about. You don't buy Pepsi or Coke depending on which one is making more profit that quarter.

       

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        Zakida Paul (profile), Oct 19th, 2012 @ 9:21am

        Re: Re:

        This is so true. I have seen so many big budget movies that have been truly awful and I have seen shoestring budget movies that have been absolutely brilliant.

        The formula for a great movie has been the same since movies were invented - good direction, good cast and a good story. That is what matters.

         

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        Laurel L. Russwurm (profile), Oct 19th, 2012 @ 10:54am

        Budget and Quality

        "Budget has never had anything to do with quality"

        Budget always has some impact on quality. Although Robert Rodriguez El Mariachi was brilliantly finessed, and well enough crafted to suck many people into the story in spite of the budgetary lack, the inability to afford synch sound equipment did impact on the finished product.

        There has always been a base line of what must be spent on equipment & media just to achieve technical adequacy. And then you need people capable of using the tools to achieve adequacy, which may necessitate a budget to hire a good sound editor, say. Without basic technical adequacy, most audiences are unlikely to be able to achievve the necessary willing suspension of disbelief. Even with a good story, every snap crackle and pop has the power to jar the audience out of it.

        That said, when Robert Rodriquez was starting out, the lion's share of the bottom line expense for film was in the film, equipment and prints to distribute it. (It was eliminating the need for distribution film prints that enabled Rodrigues to make a feature film for $7,000.) That's why studios would release movies they didn't expect to make a huge profit in only a few theatres; even studios didn't make prints lightly.

        As improvements and economies in technology have shifted the balance, today the digital part is cheap, the cast and crew cost more. The budget needn't number in the tens of millions, but even so, there is still a base cost. You have to start with a decent camera and a reasonable level of skill to make a film that the average person can watch without cringing. Even though my cell phone claims to film HD, the miniscule lens makes it inadequate to film a feature film. There has to be a big enough budget to allow the image to be reasonable and the sound to be good. The minute a film looks amateur, you've lost half the audience.

        Which is not to say that Hollywood hasn't been inflating budgets (and accounting creatively) probably from the beginning. Being able to claim a large price tag helps justify high ticket costs.

         

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          Anonymous Coward, Oct 19th, 2012 @ 11:11am

          Re: Budget and Quality

          Scene kiddies do sound syncing in their basements....

           

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          jupiterkansas (profile), Oct 19th, 2012 @ 11:48am

          Re: Budget and Quality

          You're talking about technical quality. I was referring to artistic quality. For example, El Mariachi is much better than its bigger budget and more technically competent but cartoonish remake Desperado.

           

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          Anonymous Coward, Oct 19th, 2012 @ 4:59pm

          Re: Budget and Quality

          Camera:$2500.00
          Audio equipment:$4000.00
          Computer:$2000
          Software:$2500
          Estimates but close. Your in business. All you need is talent and a good story, which really falls under the talent thing.

           

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            Anonymous Coward, Oct 20th, 2012 @ 6:25am

            Re: Re: Budget and Quality

            Get Blender, and save the software cost. It provide modeling, animation and green screen in ine packet. This save the software costs. Th site contains links to short videos created with blender and other free and open software tools.

             

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            Tiffany Gouch, Oct 20th, 2012 @ 11:19am

            Re: Re: Budget and Quality

            great business plan... I was wondering how low I could go.... THANK YOU!

             

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          PaulT (profile), Oct 20th, 2012 @ 2:25am

          Re: Budget and Quality

          As mentioned above, you're talking about a quality that's totally subjective and may not have any real impact on the quality of the film itself. In fact, higher "quality" can actually have a detrimental impact on a film. Look at the raw quality of films like the original Maniac, Texas Chainsaw Massacre, Pi, Primer and Last House On The Left. Several of those have remakes that, while glossy and better made technically, lack the rawness of the more rough and ready originals, and lose some of their impact as a result. Those that haven't been remade are unimaginable with a bigger budget, the compromises they would cause would ruin the film as a whole. They are better - because they were cheaper.

          It's all down to taste, of course. But if you're going to try telling me that a film made in the early 90s is a good barometer of what's possible today, or that a $50 million movie is automatically better than a $3 million movie simply because more money was spent on it, I'm going to laugh.

           

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      Anonymous Coward, Oct 19th, 2012 @ 9:26am

      Re:

      Size doesn't matter. It is how you get to use it! Szing!

       

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      Tiffany Gouch, Oct 20th, 2012 @ 11:17am

      Re: so true

      yep.. so true the same a**holes who sat behind their computers trying to ruin my name not knowing a damn thing about me... I wonder if the same schmucks no anything about anything.. including but not limited to defamation of character... BIG BROTHER IS WATCHING...

       

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    Chris Rhodes (profile), Oct 19th, 2012 @ 9:03am

    Remember

    Remember, these companies are the group who want "artists to get paid", unlike Mike. Or something.

    I'm sure AJ will be here at any moment to explain the "but . . . but . . . PIRACY!" position in all of this.

     

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    ChrisB (profile), Oct 19th, 2012 @ 9:11am

    Hollywood bloat

    This is the reason I think Hollywood's death can't come soon enough. I go see big budget movies and part of me weeps at how much of a waste it is. Movies like Battleship could fund a dozen Loopers, Haywires, and Chronicles, all superior movies in every way. Just as the internet crushed the tired music oligarchy, laptop movie editing and effects will crush Hollywood. Already, the quality of foreign films is nipping at Hollywood heels. I think I see as many good foreign films as American films.

     

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      Laurel L. Russwurm (profile), Oct 19th, 2012 @ 11:03am

      Re: Hollywood bloat

      Every time you go see one of these movies you're vindicating Hollywood. (Every time you pay full price to go see a "re-boot" of a superhero story, you're telling them that they don't have to support new ideas, and that owning the IP forever is a good thing).

      Wait for the rep theatre or DVD release [not blu-ray]. Funny thing; I've not seen a first run movie in a theatre since they butchered The Spirit. There are a wealth of good movies no one has heard of (because they were made by indies, and the studios/distributors chose not to push them) in the remainder bins in local supermarkets. At least in Canada.

       

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        Anonymous Coward, Oct 19th, 2012 @ 5:08pm

        Re: Re: Hollywood bloat

        nice post but look up vindicate

         

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        PaulT (profile), Oct 20th, 2012 @ 2:27am

        Re: Re: Hollywood bloat

        "Funny thing; I've not seen a first run movie in a theatre since they butchered The Spirit. There are a wealth of good movies no one has heard of (because they were made by indies"

        With my tongue slightly in my cheek - why don't you support indie movies on their first-run theatrical release then?

        Oh, and The Spirit was a Lionsgate production, which strictly speaking is an independent studio.

         

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      Brently Ford, Oct 19th, 2012 @ 11:38pm

      Re: Hollywood bloat

      Perhaps you would like to be my Facebook Friend. I call for the Destruction of Hollywood

       

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    Anonymous Coward, Oct 19th, 2012 @ 9:15am

    Iron Sky is 100% going around traditional release systems by asking its fans to go directly to movie houses and request showings.

    There are indy houses out there that show this stuff, Portland OR has the Hollywood theater and they showed documentaries and all number of local fair. To sell out crowds even.

     

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    Anonymous Coward, Oct 19th, 2012 @ 9:15am

    "massive fees" is a bit of a stretch here. The actual reasons most of these movies never show a bottom line profit is because of the number of contracts that exist with a percentage of gross, rather than percentage of net.

    Only a fool signs a net deal in Hollywood. That isn't because there is never a net (although there rarely is) but rather because a net deal puts you at the back of the bus for any payment. Smart people get percentage gross, percentage after production costs, or similar.

    Claiming that studios just dump random and unsupported large sums onto productions just doesn't seem to be supported, as it would be the sort of business move that would get companies into trouble (worse for public companies, clearly).

    I think someone has been telling you old wives tales.

     

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      jupiterkansas (profile), Oct 19th, 2012 @ 9:20am

      Re:

      Everything they're doing is right at the edge of the law (which they probably helped write)

       

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      Lord Binky, Oct 19th, 2012 @ 9:31am

      Re:

      I agree 'massive fees' doesn't convey the severity of this abuse of math.

      If a movie never achieves a net profit, then the movie industry should collapse from all the money pits they have made. But they don't because they are being dishonest and using loopholes to get out of paying people what they are owed.

       

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      Anonymous Coward, Oct 19th, 2012 @ 9:39am

      Re:

      I certainly cannot speak as to the numbers that make up each line item associated with a movie, but I can speak as to licensing where the term "net" is simply another way of saying "don't count on royalties and the like" and, thus, should be avoided like the plague if at all possible.

      There is one thing though in the above article that I am not sure is entirely accurate. Yes, forming corporations for each film is the rule. However, it is not at all clear that each such corporation is under the direction and control of the studios. There are certain legal consequences if this was the case, so it seems more likely the actual relationship is more nuanced to avoid such consequences.

       

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      BeaverJuicer (profile), Oct 19th, 2012 @ 9:44am

      Re:

      Puh-leeze.

      We all know the real reason that "Return of the Jedi" never recooped is because Pirate Mike and his lackeys uploaded it to Pirate Bay 2 days before it was released into theaters... And Aaaargh, Piracy!

       

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        Ninja (profile), Oct 19th, 2012 @ 10:07am

        averaje_goe

        blaaargh! Pirate Mike! bnglglrlnnn! Freetards! nglblaaaargh! LAW! LAAAAW! aaaack

         

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        Jenna, Nov 3rd, 2012 @ 3:17pm

        Re: Re:

        Hmmm ... not sure if the comment was intended to be sarcastic or not, but just in case ...

        Return of the Jedi was released in 1983, the Pirate Bay wasn't founded until 20 years later in 2003.

         

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      MrWilson, Oct 19th, 2012 @ 10:44am

      Re:

      "as it would be the sort of business move that would get companies into trouble"

      Who is going to prosecute Hollywood studios for that conduct - all the pro-IP lawyers in the DOJ, formerly of the RIAA, et al?

       

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      Mike Masnick (profile), Oct 19th, 2012 @ 10:58am

      Re:

      "massive fees" is a bit of a stretch here. The actual reasons most of these movies never show a bottom line profit is because of the number of contracts that exist with a percentage of gross, rather than percentage of net.

      Right after the section I quoted, he pointed out that there was no gross participation in the film. So, no.

      Only a fool signs a net deal in Hollywood. That isn't because there is never a net (although there rarely is) but rather because a net deal puts you at the back of the bus for any payment. Smart people get percentage gross, percentage after production costs, or similar.

      Again, no gross participation here.

       

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      Laurel L. Russwurm (profile), Oct 19th, 2012 @ 11:27am

      Re:

      No stretch at all. I think pretty much anyone who has worked in the film business is aware of this.

      When one party to the contract is an established gorilla, pretty much the only negiotiation open to a starting out film-maker (or actor/writer/musician) is to sign or not to sign. It isn't a question of foolishness, but an imbalance of power. And although digital technology has dramatically improved indie options, getting indie films released theatrically remains extremely difficult.

      Your contention that hollywood budgets are not absurdly inflated is unsupported by logic. The technology costs a fraction of what it used to cost. (Do they even make film prints any more?) Even you acknowledge there is rarely a net, which means that, in reality, royalties are rarely paid. Real costs have gone down (not a little, a *lot*) yet movies cost more.

       

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        Anonymous Coward, Oct 19th, 2012 @ 6:36pm

        Re: Re:

        "Your contention that hollywood budgets are not absurdly inflated is unsupported by logic."

        Nobody is saying their budgets aren't inflated. What I am saying is there is no indication that 250 million dollar empty fees are being dropped on films.

        There is a big difference.

         

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  •  
    identicon
    Anonymous Coward, Oct 19th, 2012 @ 9:30am

    Good for him to restructure and see the changes taking place. This movie made $18,000,000 last weekend alone and one that I still want to see.

     

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    Nathan Gibson (profile), Oct 19th, 2012 @ 9:31am

    The words of Freakazoid ring true - always ask for a percentage of the gross, not the net. Funny how certain truths got slipped into some of those old cartoons, like Scrooge McDuck giving economic lessons on Scarcity.

     

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    •  
      identicon
      Michael, Oct 19th, 2012 @ 9:45am

      Re:

      Here is how that conversation goes even for big name directors when you are dealing with the major studios:

      Studio Lawyer: Let's talk about giving you a percentage of the net

      Director's Lawyer: How about we negotiate a much smaller percentage of gross?

      Studio Lawyer: Umm...no.

       

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    identicon
    Paul Brinker, Oct 19th, 2012 @ 9:43am

    Iron Sky released to DVD only a few weeks after its big screen release.

    I think the % gross guys are right, If every bill for a major Hollywood film is done as % gross + cost then a movie will never make money after the cost part is covered. The simplest solution is to outlaw % gross as a payment method. There is a reason the books and contracts are never allowed to be opened up. Lord of the Rings Example Note that the entire system is vertically integrated to the point that % gross is even a problem.

    Its like we got stuck in a Mel Brook's show that fixed the "what if we succeed" problem.

     

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      The eejit (profile), Oct 19th, 2012 @ 10:01am

      Re:

      So it's like a reverse The Producers?

       

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    •  
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      Dirkmaster (profile), Oct 19th, 2012 @ 10:02am

      Re:

      From the article referenced by Paul above re Lord of the Rings, it is clear the Jackson's percentage was GROSS, not net, and the studio STILL screwed him.

      One thing you gotta say about these guys is that they're pro's. Evil, soul-devouring, hypocritical pro's, but pro's nonetheless.

       

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    identicon
    Anonymous Coward, Oct 19th, 2012 @ 9:49am

    what a shame Scott Derrickson doesn't go and explain this crap to Congress. what is an even bigger shame is that, even if he went to them and explained what was happening they would totally ignore him, or not understand what he said, or maybe even both! then the members of Congress would simply turn around, collect their massive 'brown envelopes' and vote another draconian law into being!

     

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    That Anonymous Coward (profile), Oct 19th, 2012 @ 9:50am

    but but but I spend $500,000 to make my movie and I never made any money back because piracy...
    crap I think ootb is contagious...

     

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    icon
    art guerrilla (profile), Oct 19th, 2012 @ 9:59am

    why is it 9 out of 10 movies are about...

    ...a secret agent/assassin/hitman who is pushed to the limit and visits righteous revenge on the world ?

    just askin'...

    art guerrilla
    aka ann archy
    eof

     

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    identicon
    DMC, Oct 19th, 2012 @ 10:05am

    Class Action

    Smells like a class action suit waiting to happen. If the allegations are true, I imagine the studios would settle before discovery spreads their books wide open.

     

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    streetlight (profile), Oct 19th, 2012 @ 10:07am

    Is Max Bialystock in the house?

    I haven't heard that the studios sell 200% or more of the cost of a film hoping for a flop and keeping all the cash. Maybe that happens, too.

     

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    identicon
    Anonymous Coward, Oct 19th, 2012 @ 10:10am

    Yeah its all the middle men screwing it up for filmmakers. Some of these movies are gigantic hits but the people involved get little to nothing. This is exactly why when the copyright enthusiasts claim its for the actors we don't care.

     

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    identicon
    Paul Brinker, Oct 19th, 2012 @ 10:22am

    Lord of the Rings

    While Lord of the rings is one of the movies I can point out, Forest Gump Lost money too. If you look at the Gump accounting you will see that Hollywood charges directly off Gross here as well, and payed Net to the author (whom was rich enough to not want a law suit, and instead declined to provide the 2nd book to turn into a movie).

    The sad fact is that its a situation where over 100% gross is given out so you cant make money if you wanted to.

     

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    Aaron Martin-Colby (profile), Oct 19th, 2012 @ 10:39am

    Piece of the gross!

    I don't know if anyone has posted this yet or not, but it's a clip from a mid-90's cartoon called "Freakazoid," where the titular character is teaching an idiotic alien the ways of Earth.

    Cartoons taught us something back then!


    Freakazoid: Always ask for a piece of the gross, not the net. The net is fantasy.

    Alien: Yeeennngggg! Piece of the gross!


    http://youtu.be/bHL91HQzhuc

     

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    artistrights (profile), Oct 19th, 2012 @ 11:30am

    Box Office Revenues

    One thing that I hope Mike will recognize in these "Hollywood Accounting" stories is that box offices revenues are *not* revenues actually recognized by studios. Generally, 50% or more of those astronomical box office figures go directly to the exhibitors (i.e., the theater owners). Thus, while box office revenues are referenced by studios for purposes of calculating certain percentages owed to participants, it is important to realize that the studio isn't splitting up the box office revenues... it's likely splitting up less than 50% of that amount. I'm not sure that this is distinction is made clear to readers in this article.

    Source: http://www.slate.com/articles/arts/the_hollywood_economist/2005/05/gross_misunderstanding.html

    An other perspective from the above cited article:

    "Consider, for example, Touchstone's Gone in 60 Seconds, which had a $242 million box-office gross. From this impressive haul, the theaters kept $129.8 million and remitted the balance to Disney's distribution arm, Buena Vista. After paying mandatory trade dues to the MPAA, Buena Vista was left with $101.6 million. From this amount, it repaid the marketing expenses that had been advanced—$13 million for prints so the film could open in thousands of theatres; $10.2 million for the insurance, local taxes, custom clearances, and other logistical expenses; and $67.4 million for advertising. What remained of the nearly quarter-billion-dollar "gross" was a paltry $11 million. (And that figure does not account for the $103.3 million that Disney had paid to make the movie in the first place.)"

     

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    •  
      identicon
      Anonymous Coward, Oct 19th, 2012 @ 11:42am

      Re: Box Office Revenues

      So, you use an article that is nearly 7 years old to "prove" a point that has been shown time and time again to be false.

      In fact, most of the money made goes directly to the studios. The first two months profits go entirely to them, with the theaters getting percentages after that. This is the reason concession stand prices are astronomically high, the theaters use the money generated from them to essentially stay in business.

      For someone with the username "artistrights", you don't seem to be denying that Hollywood Accounting exist and does take place. Very much screwing over and violating artists rights.

      One might almost draw the conclusion that despite using the username "artistrights" that you care very little for the artists. In point of fact, your comment history seems to show you care about "artists" if by "artists" one means "labels/studios/RIAA/MPAA". You wouldn't happen to be a sock puppet would you?

       

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        artistrights (profile), Oct 19th, 2012 @ 12:05pm

        Re: Re: Box Office Revenues

        Hi AC,

        If you have evidence that the article I referenced is "false," I would love to see that evidence and learn more about these issues. In addition, if you have sources which show that studios actually receive the first two months of "profits," I would be very interested in seeing that evidence as well. Even if it were true that studios keep the first two months of "profits," it seems like you concede the point that box office revenues do not reflect the amount of revenues studios actually bring in (instead, it is some percentage of that). That in and of itself seems relevant to a discussion of Hollywood accounting.

         

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      icon
      Lowestofthekeys (profile), Oct 19th, 2012 @ 12:36pm

      Re: Box Office Revenues

      "One thing that I hope Mike will recognize in these "Hollywood Accounting" stories is that box offices revenues are *not* revenues actually recognized by studios. Generally, 50% or more of those astronomical box office figures go directly to the exhibitors (i.e., the theater owners). Thus, while box office revenues are referenced by studios for purposes of calculating certain percentages owed to participants, it is important to realize that the studio isn't splitting up the box office revenues... it's likely splitting up less than 50% of that amount. I'm not sure that this is distinction is made clear to readers in this article."

      That percentage is dependent upon the studio and the theater bidding for the movie. A contributor at joblo.com laid out two articles regarding that here - http://www.joblo.com/forums/showthread.php?t=96049 (funnily enough the other one was the one you posted a link to). The first details a story with Sony asking 80% of ticket revenues for Godzilla when it first came out in theaters.

      Also according to this - http://entertainment.howstuffworks.com/movie-distribution1.htm - movie studios can lessen the impact of a movie's expenses by partnering with other studios.

       

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      icon
      James Burkhardt (profile), Oct 19th, 2012 @ 12:42pm

      Re: Box Office Revenues

      A few Points: A) This merely proves that we need to move to digital Distribution methods which costs almost nothing, B )I expect that Gone in 60 seconds had a relatively small opening weekend (it did) and earned most of it's "gross box office" after the initial high-fee period of the film (given the box office run was 4 YEARS long). Not of course accounting for licencing to HBO, DVD sales, ect. But that movie made only 25% OF its budget in opening weekend.

      Lets take Return of the Jedi, just in its initial release, as a contrast: It cost $32.5 million to make. Its opening weekend was $23 million. 70% of production cost was made in opening weekend. It remained in the top two for weekend gross for the next 8 weeks (when a far higher percentage goes to the studio) making $102.24 Million Gross, more then 3 times production cost in Gross reciepts. IN that first week say 75% of reciepts went to the studio rather o account for the higher royalties and the studio got $76.68 Million. Lets keep the inflated $23.02 million for Prints and Logistical Expenses (it cost less in 1983). Advertising cost amount to 28% of gross box office revenue, so $28.63 million. So, with inflated numbers the studio still needs to recoup $7.47 Million in the remainder of its initial box office run. We have already written off a proportional 4 years worth of advertising and Logistical expenses, so they shouldn't be incurring more. Between week 9 and 21, an additional $36.669 Million was collected, giving the studio an additional $18.335 Million, and achieving profitability.

      But they likely added more costs and more costs with re-releases that are keeping profitability down. Thats why we keep getting new versions of a "failed" movie.

       

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      Keroberos (profile), Oct 19th, 2012 @ 3:23pm

      Re: Box Office Revenues

      No one is questioning the amounts spent, we want to see the invoices so we can see what exactly it's being spent on, and if thats what the going rate for those services are.

       

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    •  
      identicon
      Matt Gamble, Nov 3rd, 2012 @ 11:50pm

      Re: Box Office Revenues

      Exhibitor's don't take 50% of the grosses, it is generally closer to 10%. The remainder is split up between studios and distributors. Exhibitors don't make money off of tickets, they make money off of concessions.

       

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    Lowestofthekeys (profile), Oct 19th, 2012 @ 12:53pm

    I really think that if the studios end up biting down and attempting to cut costs on distribution, they're going to start pushing for exclusive releases of new movies to video-on-demand services as opposed to theatrical release. There's already talk that they'd be making a steady 80% of the cut from VOD premium showings(http://www.guardian.co.uk/media/2011/apr/01/hollywood-video-on-demand-cinema) and overhead costs would be minimal (no more reproducing film prints).

     

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    identicon
    gnudist, Oct 19th, 2012 @ 12:59pm

    I

    If you rake in as much as hollywood does and you still aren't turning a profit you're problem isn't piracy, it's a problem with how you run your business.

     

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    icon
    ECA (profile), Oct 19th, 2012 @ 1:30pm

    fRAUD

    AND THE IRS??

    You have to understand another point of interest.
    the IRS is overwhelmed.

    HOW to list, find every business concerned.
    HOW to prove, a fly by night business that Disappeared, had any profit?
    MOST STATES HAVE GIVEN UP ON FINDING THIESE, Flash companies.

    You would think the IRS or even the states could/would keep track of all the companies. they Cant. There are thousands of QUICK/Flash companies popping up.ANd where do you think we CUT BACK FIRST??

    There is a choice.
    GET PEOPLE to help.(but thats illegal)
    People are FREE, and if you get People to HELP the gov(state/federal) it gets us to be PART of the gov.

     

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    icon
    lucidrenegade (profile), Oct 19th, 2012 @ 1:50pm

    Amazing!

    A "$100 million dollar movie" article has been up for over 8 hours and no OotB post? I'm shocked.

     

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    •  
      icon
      Alana (profile), Oct 19th, 2012 @ 6:18pm

      Re: Amazing!

      Hey, trolls have lives too! ...i think?

       

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      •  
        icon
        That One Guy (profile), Oct 19th, 2012 @ 10:48pm

        Re: Re: Amazing!

        I'd lean more towards:

        A) Even they have survival instincts, and realize jumping into this one with their usual arguments will get them ripped to pieces.

        Or

        B) Even they are finding it insanely difficult to try and justify this sort of scam.

         

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    identicon
    Anonymous Coward, Oct 19th, 2012 @ 2:13pm

    Broke people don't live in fucking 6 million dollar mansions.

     

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    •  
      identicon
      Anonymous Coward, Oct 20th, 2012 @ 3:58am

      Re:

      They could... Not sustainable does not equal not happening. There is a turnover time on a lot of things and generally if something is more expensive, it is slower to turn over.

       

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      icon
      jupiterkansas (profile), Oct 20th, 2012 @ 10:23am

      Re:

      I was going to make this point. Anyone getting a percentage on a film, net or gross, is probably also getting a hefty up-front fee, sometimes in the millions.

      Everyone else just gets paid to do their job and go home, and whether the movie's a hit or not doesn't make a lick of difference to them.

       

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    •  
      identicon
      Anonymous Coward, Oct 21st, 2012 @ 8:07am

      Re:

      Since when has a major corporation going broke lead to its its board going broke?

       

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    icon
    Thomas (profile), Oct 19th, 2012 @ 5:20pm

    they hide

    the true amounts so they don't have to pay the actors a percentage and also so they can moan to Congress how much "piracy" is destroying the industry. They are a racket, just as much as the mob, but not as evil.

     

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    identicon
    Filmteknik, Oct 19th, 2012 @ 9:45pm

    For starters, don't call it profit. Do they? It's an arbitrary number that is calculated in a way that is in the contract. And if this arbitrary number remains negative despite the movie making lots of money that's just the way it is. Don't like it? Don't sign. I don't like neophytes being shafted but when people who can hire the best lawyers, accountants and agents complain because they signed a contract that keeps their film's arbitrary numbers (again, don't call it profit) forever in the red, well boo hoo.

    Where do you think the money goes to finance movies that lose money? To pay all those development fees for things that never even go in front of a camera?

    If the studios are making out like bandits, great, buy some stock.

     

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    That Anonymous Coward (profile), Oct 20th, 2012 @ 2:31am

    I've solved it all.

    The Box Office Numbers are an arbitrary number just used to create the illusion of a good film.
    Its a marketing gimmick that someone forgot doesn't represent real money.

     

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    •  
      icon
      Not an Electronic Rodent (profile), Oct 20th, 2012 @ 10:06am

      Re:

      The Box Office Numbers are an arbitrary number just used to create the illusion of a good film.
      A subset of Bistromathics perhaps?

       

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  •  
    identicon
    Colonel_Klink, Oct 20th, 2012 @ 4:14pm

    Yup. Big Boyz Screwz Little Guyz

    Now one sees why there is an allure to indie film making. Thank you for such an insightful article.

     

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    identicon
    Anonymous Coward, Nov 1st, 2012 @ 5:29pm

    This just isn't how film accounting works. The film isn't saddled with a fixed number fee, the fee is a percentage of the box office. 8-30% with studio funded pictures getting the high end— 30%.

    The issue is this is necessary because otherwise the studio couldn't even break even. MGM Studios is relying on Skyfall and the Hobbit to get it out of a massive hole. Hell, it filed for bankruptcy and was completely restructured.

    Not understanding how/why something works is not really a good basis for criticizing it.

     

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      identicon
      Ashino Wolf, Jan 7th, 2013 @ 12:12pm

      Re: Ok, but

      Nice explanation, but I don't get it fully, sorry. So take that 'The Exorcism of Emily Rose' movie with a $144,216,468 mil.WW profit(BOM), made for just $19 mil, and let me know how such fees(tax or whatever else) may push a return of $125,216,468 mil into as fishy as murky figures(??!!) that in the very end not even a 5% net-share can be disbursed??!!

       

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    identicon
    Jean Boisvert, Nov 3rd, 2012 @ 1:41pm

    Accounting bullshit

    Hi,
    Despite the accounting demonstration described above; you are indirectly saying that the movie made millions and millions of dollars of profits. The rest is just accounting in order to make it legal to have tax breaks. It doesn't take a 100 watts to understand that. Shalom.

     

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  •  
    identicon
    David Silva, Jan 6th, 2013 @ 9:02am

    Inversely Proportional

    To a large degree, the relationship between a Hollywood budget and quality of film is inversely proportional. The bigger the budget, the crappier the film.

     

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  •  
    identicon
    Ashino Wolf, Jan 7th, 2013 @ 12:44pm

    What about the actors? Do they work 'just for a few cents' plus some percentage of the movie's box-office profits?, if it'll make some cash back. 'Sinister', for instance, is about $90 mil. worldwide at the moment, so will Ethan Hawke get his share, let's say 5-10% ? But he's quite famous, what about the no-names? Praying & hoping for a better check with the next one or rise of their current market values by having a HIT?? Haven't heard much of Scoot McNairy and Whitney Able post 'Monsters', though both working constantly in featured parts. However better than nothing.

     

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  •  
    identicon
    NYC logistics, May 19th, 2013 @ 8:50pm

    Don't mess with the boss

    An employee can't easily mess up with his/her boss. But the boss can. This is exactly how big Hollywood studios do to their offshoots (i.e. movie producing "sub" companies).

     

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  •  
    identicon
    Zach, Jul 10th, 2013 @ 3:20pm

    Kevin Smith

    Just ask Kevin Smith or George Lucas. Both of them took independent films to new heights.

    If you're interested in learning even more about 90s movies, please check out my blog 90smovies.net.

     

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  •  
    identicon
    Zach, Jul 11th, 2013 @ 3:56pm

    90s Movies

    There's something about 90s movies that makes them better than newer films. People still relied on massive sets, creature effects, and old school camera tricks to make fantastical scenes look believable.

     

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  •  
    identicon
    action movies, Jul 16th, 2013 @ 10:56am

    pretty sweet article

    I really enjoyed this article, eye opening

     

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  •  
    identicon
    frank8696, Aug 4th, 2013 @ 2:48pm

    Paranormal Activity it's another studios fraud...

    Yeah, they surely didn't spend much to make the awful Paranormaly Activity movies. However it's not an independent cheap production outside of the Hollywood studios gangs. Those movies were a marketing operation, they put everything on hype and paid with bribes plenty of so called professional reviewers and critics and journalists worldwide to get the crap sold to as many naive people with a bad taste and lack of brain as possible.

    While Monsters is a good movie and they surely didn't spend $800,000 to make it. The CGI alone in the movie costs way more than $800,000 from any CGI production company.
    They didn't spend $50million to make Monsters but they surely spent $5 to $10million. Not the $800,000 they claim. They fake accounting too. It's a studios marketing operation, a smoke screen.

     

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  •  
    identicon
    Sir John, Oct 21st, 2013 @ 11:42pm

    Nice research. Your work is appreciable. I enjoyed reading your post, you are a good and knowledgeable writer.

     

    reply to this | link to this | view in chronology ]

  •  
    identicon
    Fiona Wilson, Nov 5th, 2013 @ 7:15pm

    Corporate Entitlement

    It doesnt come as a shock to the rest of the population when we see these standards are loose accounting. Hiding behind the vale of corporate entitlement seems to be why the world is in so much trouble.

    This is the sort of accounting that the average person would be jailed for... In fact every year there are many individuals jailed for this type of loose accounting.

    Why shouldnt the movie companies be any different to the rest of the corporate jungle... Why shouldnt they get away with this, the rest of the corporate trash heap are doing it every day..

    I know I probably have not added anything constructive to this post, but I have seen several of these occurances of loose accounting lately and it really doesnt surprise me any more.. But it should surprise me, it should annoy me, it should eat at me, and it should eat at you as well. Because if this is what we know, what else is going on that we dont know, what else is the corporate jungle getting away with.. Its seems obvious to me when you see the state of the worlds enconomies, mostly driven to this point due to one thing, profit, profit and more profit...

     

    reply to this | link to this | view in chronology ]


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