LucasFilm Tells Darth Vader that Return of the Jedi Hasn’t Made a Profit
slashfilm.com
slashfilm.com
http://en.wikipedia.org/wiki/Hollywood_accounting
Summary:
-Studios create a subsidiary corporation for each movie and they almost never show a profit.
-The studios charge the subsidiary service fees for services performed like distribution, which lowers net income to zero or less.
-They do this to avoid taxation and paying royalties to actors.
Quote from wikipedia: "Because of this, net points are sometimes referred to as "monkey points," a term attributed to Eddie Murphy, who is said to have also stated that only a fool would accept net points in his or her contract."
There are many more cases like this involving high profile people including Peter Jackson:
http://www.techdirt.com/articles/20100708/02510310122.shtml
Geez, a $57 million dollar loss in interest. How is that even possible?
I have to imagine that the legal strategy required there is a for loop with half-dozen templated documents: "Settle with $CLIENT regarding the residuals from the production of $FILM or in discovery we will subpoena all of $FILM's books and hand them to the forensic accounting department of $BIG_FIVE who will describe in vivid detail how they are an utter fiction, resulting in $DISTRICT_JUDGE issuing a judgement in excess of $GUESS against $YOUR_COMPANY."
Because they'd lose.
A Hollywood investigation would be worse politics, since you've have every TV station screaming about the government intrusion in investigating their parent companies. Look at things like the just failed Attorney General settlement with the banks - the worst case here is the company makes a one-time payment of a few pennies on every dollar of profit to some fund nominally targeted towards the victims. Then you throw in all the indemnification offered by corporate structuring and the fact that there probably aren't technical violations of the law here and good luck selling some accounting irregularities as a prosecution.
Maybe in a few years that stuff will change, but right now the environment is such that nobody really buys the idea of government actually smacking someone with TR's Big Stick.
Because it's a violation of professional ethics to solicit clients in this way. That's one reason you occasionally see articles by lawyers explaining in copious detail why situation XYZ actually rests on a totally unstable legal foundation; they're hoping some interested party will notice the article and come to them.
In keeping with the Star Wars example, suppose David Prowse sued on behalf of himself and all other costume-actors in Return of the Jedi - by 'costume actors' I mean people who appear on the screen but don't speak any lines. Darth Vader's lines are all spoken by James Earl Jones because David Prowse has a goofy accent that's not appropriate to the character; the Screen Actor's Guild mandates quite different royalty payments for actors who talk as against actors who merely appear. If a court agrees that 'costumed actors' constitutes a viable class of identifiable persons who are similarly situated (they probably would; they're listed in the credits, and many actors appear without having any lines to speak) then it may certify a class on the basis that it's more reasonable to wrap multiple plaintiff's claims into a single suit. A lot would depend on whether the court considered the suit to have any merit, which would require looking at industry employment agreements of the time. I don't know much about labor law so I couldn't tell you how likely that is. My gut feeling is 'not very' because these compensation practices are widespread. Anyway, say Prowse does a good enough case that he either wins, or Lucasfilm fears that defending the case will cost more than paying out and offers a settlement. Then everyone who played an Ewok/Stormtrooper/whatever but didn't have any lines will get a letter advising about rights arising from a class action.
Basically, if you are ever invited to appear in a big-budget film or TV show you need to remember three things: do you have a line (otherwise it's low-paid day labor with free lunch and some celebrity-spotting fun), SAG minimum (get hired in accordance with the Screen Actor's Guild deal, or Actor's Equity on a TV program), Taft-Hartley (in case the producer says you need to already be a member of the actor's union). If you have a line and come under an industry agreement, you get a residual payment every time the film/tv show/commercial is rebroadcast. This can add up to a tidy sum if you are lucky enough to work on something that becomes a hit. If you get hired as an extra, you can try talking during the scene you're in to get a speaking credit, but you'd better add enough value to the scene that the director is willing to stick up for you when a producer objects. That's the basic difference between acting and just having a particular look. David Prowse can't act, sad to say; he's what people in the industry call a 'movable prop.'
What would happen instead is that more actors and writers would be willing to work with you because they knew they'd get a fair share of the whole deal.
At the time I was hired in '89 or so they were doing away with that practice. "New developers don't get royalties any more."
But, it was a good business to be in for a short time. I'm not sure if Microsoft developers ever enjoyed royalties.
Who did this benefit? Not the government, they lose taxes as now the contractors have to incorporate (filtering your income through an S-corp allows you to deduct all sorts of expenses). Not the contractors who now have to maintain and run a corporation.
It's always the corporations who benefit. Corporations are largely owned by the massively wealthy.
I mean, really. I can see being a greedy fuck for a couple decades, while you're still unsure if you are, in fact, going to become and remain wealthy beyond the dreams of avarice. But once you have the fuck-you money put away for you, your entire family and everyone you've ever met who was halfway interesting, can't you toss Lord Vader some coin for his trouble?
Shameful.
This isn't a case of Lucas being exceptionally greedy. Maybe its a case proving how 1-sided Hollywood contracts are, though.
So by the time these contracts were being negotiated with David Prowse, the producers of the project knew that the movie was likely to be highly successful.
There's more, including calling any such distortion of [his movie?] art as barbaric.
http://savestarwars.com/lucasspeechagainstspecialedition.htm...
But none of that's the point. The GP was pointing out that a not insignificant portion of the population donates more than 10% of their income on a regular basis. In light of that, 5% isn't much, particularly for someone with a great deal of income.
http://en.wikipedia.org/wiki/Finances_of_The_Church_of_Jesus...
My point is that a person donating 10% to an inefficient charity like the Mormon Church is not as laudable as, e.g., a person donating some fraction of 10% to one of these: http://www.givewell.org/charities/top-charities
Humanitarian efforts relieve suffering for families of all nationalities and religions.
-In 2010 the Church provided relief to people affected by 119 disasters in 58 countries.
-Over 7.5 million people now have access to clean water because of Church efforts from 2002 through 2010.
-Since 2002, over 193,000 health care workers have been trained in Neonatal Resuscitation Training. The World Health Organization estimates that 1 million newborns die each year of breathing difficulties.
-Since 2003, over 550,000 people have benefitted from Church vision projects throughout the world.
Likewise, suppose I donate 5% of my income to charity A which is 100 times as effective at saving lives as charity B. My neighbor, of similar means, donates 50% of his income to charity B because of his mistaken belief that charity B is just as good. Now, I may know he's making a mistake, and there's no way I would choose to send my money to charity B, but my neighbor is still more honorable for making such a large sacrifice for something he thinks is right.
In my book, you don't get any points for merely thinking you're right. You only get points for actually being right.
For example: If Gandhi had been assassinated earlier, would that have made him a worse man?
I still think he ought to give Darth more money.
Also, of course, he started the companies in order to make some great films.
Maybe public companies are different (though since, movie studios are just about all subsidiaries of public companies, maybe not), but in my dealings with many multi-million dollar companies (especially those with union contracts to deal with), they find any way possible to show a loss on the balance sheet.
Between accounting tricks and taking money off the table through reinvesting (real or imagined) and executive salaries, profit is basically a made up number based on whatever management wants it to be.
Taking any percentage of net profit, in plenty of industries, is basically the same as taking nothing.
On a side note: the article and the one from the other day that mentioned this story as well only seemed to consider box office gross as the movie's revenue. I mean how many of us just on HN have more bought or gotten than one copy of the Star Wars movies over the years? I know I have at least 3 hanging around, to say nothing of TV airings and the like.
[1]Liability to employees: Through profit-sharing programs, raise discussions, union contract talks, etc., publicly showing a "profit" can cost the company money.
I think it's just a matter of good bargaining. At the time, Guinness had been in the movies for three-plus decades. Prowse's career hovered just above the "extra" category. Prowse probably signed whatever contract they gave him; Guinness probably dictated terms.
At the time, Prowse was most famous as the Green Cross Code Man, from the UK's pedestrian safety public service films of the time.
Another trick seems to be bundling - "buy this collection of things and you get thing x for free". So profits for selling thing x would be zero.
I am sure there are many more tricks like this...
I bet a good lawyer could have made a case for you.
I believe the IRS would consider the advertising to have some monetary value, which is what your gross profit fee would be based on.
The fair market value of goods and services received in exchange for goods or services you provide must be included in income in the year received.
That silicon valley and tech is taking over the world might be a result of this, but in any case, it's better for humanity.
[1] http://techcrunch.com/2011/06/26/skypes-worthless-employee-s...
very rarely do founders fuck their employees over, relative to how employees are treated in most places. Founders vs. VCs or Founders vs. PE is more common, but founders at a late-stage company should be a lot more educated and resourced.
It's mainly at the idea to startup to series A stage where people are fairly universally honorable, at least among the top people.
I had typed up my experiences over three exits in that thread, posted it and deleted it a few minutes later as it didn't add enough to the discussion relative to what it revealed about me.
Founders may not give their employees good deals because they just make stuff up and don't do any analysis.
Aside from value of options (which most people consider to be $0-$20k for the average $100-150k/yr job), all the other benefits of working in tech are straightforward and employee-favorable.
In an early stage startup, you're not likely to see worse than 2x participating, and 1x non is the standard for Series A financings now.
Wouldn't it be nice.
http://www.salon.com/technology/feature/2000/06/14/love/prin...
"Can you imagine the hedlines if Darth Vader sued George Lucas?"