Harry Shearer: Why My 'Spinal Tap' Lawsuit Affects All Creators | Hacker News Reader

Harry Shearer: Why My 'Spinal Tap' Lawsuit Affects All Creators

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106 points6stringmerc39 comments

I knew this would be about Hollywood accounting.

For those that are not familiar with the practice, a leaked income statement shows that "Harry Potter and the Order of the Phoenix" ended with a $167 million loss[1], while "Return of the Jedi" has yet to make a profit[2].

[1] https://www.techdirt.com/articles/20100708/02510310122.shtml

[2] http://www.slashfilm.com/lucasfilm-tells-darth-vader-that-re...

Geez, I can't believe they kept making Harry Potter films are losing $167M!

Taxpayers subsidise film production, pay a fortune to watch it, and then pay a fortune to "protect" it from being pirated. The CEOs who have made enormous wealth from this process then lecture us on the morality of "stealing". On taxpayer-subsidised adverts of course.

Clearly they are using advanced financial and political engineering. I'd bet that the tax burden is very low too.

Does anyone know how they're pulling this off? Are they funneling all the profits to an Irish subsidiary or something along those lines?

I'd be pretty irritated if I had a percentage of the net in a project like Return of the Jedi and they pulled something like this.

I may be wrong, but my understanding is:

1. "Big Studio Co" decides to create a new film called "Movie"

2. Company "Movie Inc." is created for producing of "Movie".

3. Actors et. al. sign profit-sharing agreement with "Movie Inc"

4. "Movie" gets shot and released.

5. "Movie Inc" licenses something from "Big Studio Co" for a bazillion dollars.

6. "Movie Inc" is now officially in negative.

In case you were wondering after reading the original article how they can generate losses on profitable movies, this article explains how Hollywood accounting actually works:

https://www.theatlantic.com/business/archive/2011/09/how-hol...

See also double-Irish used in other industries to protect profits.

https://en.m.wikipedia.org/wiki/Double_Irish_arrangement

I think this (and other examples) show that if you want to make money in creative jobs, you need to be the distributor, or negotiate for a big advance. A percentage of profits is basically not going to pay out -- actually this seems like the same thing as startup pay: negotiate on salary, because you're actually going to get that.

Seems like gross receipts or some sort of revenue calculation is a stronger position, but would be harder to get companies to agree to.

Art Buchwald won a ruling in 1990 that he should be paid on the gross profits of a movie. This contemporary article says that the decision was "likely to force sweeping changes in the way Hollywood negotiates its contracts and does its bookkeeping", but I imagine they just closed the "loophole" through which Buchwald won.

http://www.nytimes.com/1990/12/22/movies/buchwald-gets-damag...

Apparently Art Buchwald and Paramount Pictures settled for $900M, including vacating the judgment; and a future case Batfilm Productions v Warner Brothers found that net profits terms were acceptable.

Go get 'em, Harry! Are you sure $125M is enough? You guys deserve far more, in my opinion, for creating one of the funniest and most quotable movies ever.

Once the rest of the "band" signed onto the lawsuit, it was increased to $400 million.

Clearly, this lawsuit goes to 11.

Yeah, don't pirate music/movies, kids, the artists need the money. Oops, turns out the record/movie companies weren't paying them in the first place.

The accounting is clearly shady, but record and movie companies use the current revenue to pay advances on new projects. And probably, the artists will get bigger advances on new projects if their existing projects are generating revenue.

Which in no way supports paying for content from dead artists.

That is why its almost always better to pay for their shows and buy a shirt

In the article it says the 4 creators of Spinal Tap made $81 total in merchandise sales.

I've thought for years that all actors and artists need tip jars. Ones that go directly to them and no one else. It would be a nice way to support the artists you like, knowing it goes directly to them.

I don't know how movies and merchandising typically operate, but it used to be the case that musicians did their merchandising separate from their music deals. This meant that buying a t-shirt and a ticket would contribute more money to an artist than a record sale. I've seen articles and comments floating around that "360 deals"[0] are becoming the norm, due to dwindling record sales. These deals mean a cut of everything goes back to the record company.

[0] - https://en.wikipedia.org/wiki/360_deal

But Shearer et al have an odd situation where they can't perform as Spinal Tap without Vivendi's permission (and hand in the till). They can't even perform the songs without paying a mechanical/performance royalty to the copyright holders.

I've heard artists beg the crowd to not buy their album and instead buy their merch. On a $15 CD they get maybe $2. On a $15 shirt they get like $10.

You'd think the IRS would get involved- creators robbed of income means governments robbed of income tax.

Someone's paying tax on it, just not the people that deserve it.

Hypothetically. OTOH, someone who scams artists probably has ways of scamming governments.

Well, given the fact that companies regularly do something similar by having their companies generate their profits in areas with low tax rates by forcing wholly-owned subsidiaries in locations with high tax rates to pay licensing fees which basically cancel out their profits, I'd be inclined to agree.

Someone else linked this farther up the page, which is the example I'm most familiar with:

https://en.wikipedia.org/wiki/Double_Irish_arrangement

Corporate dividends and profits are taxed at lower rates than income, pretty much everywhere.

I was just joking to a new gamedev group I joined about this when we started discussing selling our game. Ugh. So ridiculous.

I do hope they are successful, although I realize that one possible outcome is that in an effort to pay the creators the studios/distributors raise the price of the content by 25% rather than shift balance of payments.

At some point, individual creativity is the the 'job' that will be automated last, if at all. It will be useful to be able to make a living wage at it in the future.

Aren't most contracts nowadays structured to avoid these types of shenanigans? Profit sharing off gross income instead of net, for example.

If the talent is a big A-list star, he/she can ask for gross points and sometimes get it.

On the other hand, if you're a desperate actor (or composer, or director, etc) and have no leverage to negotiate a percentage of gross instead of net, you end up taking whatever you can get. E.g. comment about the persistence of Hollywood Accounting with an example of Jonah Hill: http://movies.stackexchange.com/questions/17022/why-does-hol...

> Although not 'Hollywood Accounting', Jonah Hill

The comment is about Hill taking less (a lot less) to be in a Scorsese film. That seems like an entirely reasonable tradeoff. He wound up with a second oscar nomination out of it. It's also a move that no one would bat an eye over if it was to do some artsy indie film.

Right. The Jonah Hill example was about "no leverage" inside of a larger comment about Hollywood Accounting. Jonah himself didn't suffer from Hollywood Accounting -- unless he did sign one of those "net points" deals of which he gets ongoing residuals of $0 that the public doesn't know about.

An unequal power dynamic between the talent and the studio means some actors accept deals such as Hollywood Accounting, or SAG minimum wage, or possibly both.

Or worse! The studios culled the talent on "reality tv" by calling them contestants and bypassing SAG minimums altogether.

The takeaway is: if you want to make money, you have to go to ridiculous lengths to dodge the tax man. Makes me think of the origin of the word "privilege": private law. If you can afford a real financial manager, you have a totally different set of rules.

Anyone know a good financial manager? I'm in the market....

So they are siding with a politician from Luxembourg to try to get fairness in accounting practices? That's an incredibly creative plot twist...

I read an article many years ago about the music recording industry. According to this article, compilation albums (think NOW! 37 and so on) are not considered "final playlists or track listings", and therefore the distributor does not need to pay the artists.

I did a bit of googling to find a source but it seems a lot of the recent talk has been about online streaming and creating playlists.

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