How A $19 Million Movie Makes $150 Million - And Still Isn't Profitable
techdirt.com
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Why would they bother paying the artists, when instead they can invest that same money on a 2nd round of advertising? From their perspective it doesn't make sense to ever pay the artist. The only time they do is if the artist gets really pissed off, has some clout and the studio/label wants to keep them happy. If all three of those things happen then maybe they'll get some crumbs.
The moral of the story is, unless you have the kind of clout to make your own deal, make sure you get a satisfactory amount of money from your advance (up-front payment).
Such a world will require a lot more independence and proactivity from us the consumers (which we are frankly not accustomed to at all right now), from the extra effort needed to engage in "discovery" and in realizing how much of an impact each consumption & purchasing decision can have on the lives of each creative person we choose to support; but such a world will have far more diversity and niche options than we currently see today, which would be a truly amazing future.
For example, a band could kickstart their own record/tour by asking for crowd funding. These sorts of funding means that they aren't somehow tied up by commercial record companie's business tactics which would obviously benefit the record company, and not the actual person/group making the creative work. This way is the way forward, as surely as water falls off a waterfall.
Maybe someday this will become a more mainstream phenomenon and it will spread to other media. I can only hope.
The distribution channel is slowly being eroded by the Internet, where a band with the right mix of music and self-promotion can get their music in front of half the planet for the cost of a Wordpress template and some solid hosting.
Getting music on radio and raising the initial capital to get a studio album made are the two missing pieces of the puzzle, but I strongly suspect the Internet will fill those gaps competently in the next few years, as crowd funding reaches maturity and old media like radio realises they don't have to deal with the major labels directly any more and can find new, popular music with a few google searches.
There is such scope for a startup working in this field. You could host and sell albums on behalf of bands, offer a crowd funding model for those who need to raise the funds to record, and build relationships with radio networks to funnel new music their way once a band has reached a certain threshold of community appreciation or some other relevant metric.
The record industry is almost universally loathed, it just seems so ripe for disruption.
"Popular" music will always be predominantly influenced by deep pockets. Not exclusively, but damn near close.
Because eventually word gets around. Especially these days with social media, minor celebrity bands who end up with nothing have a forum for their complaints.
I was one of those people once and got a fairly standard (crappy) deal. We're still 6 figures in debt to the label even though the records made a profit.
Half of your statement is true, most if not all young musicians want to be famous (and by that I mean have lots of people listen to their music and see them play). I don't think the second part is completely true though. Most musicians do what they do because they love it and as long as they can make enough money to buy them food, a bed, and get them to the next show, they will be satisfied. People are familiar with the bad reputation labels have and are aware it is not always a road to riches. I think there are very few people who get into music for the money, frankly because the chances of you making a lot of money in it are unlikely. If you want to be rich there are much easier paths.
A lot of musicians are comfortable with a meager living - but not too many of appreciate being poor while the label is raking in cash. But, that's the reality of it. A big label has the power to get you in front of a lot of people and make you famous. It's better to build up the fanbase on your own in the long run, but that's a tough road and many, many artists are eager to accept the shortcut in exchange for a crappy deal. That's just the way it is.
That doesn't matter to the labels, because there's a sufficiently large stream of starry-eyed wannabes to keep the wheels in motion. The labels simply don't want to sign the sort of band that's happy to have a small but loyal fanbase, because they can't make any money out of it - like tech VCs, their business model is based on signing a lot of long-shots aiming for global domination.
Supposedly, if you look at the big picture, then the amount of taxes actually paid matches the amount that would have been paid had the structure been simple. The IRS is supposedly not that foolish.
However, this structure can let the studios (and similarly, record companies) keep a larger share of the real profit, rather then actually do "profit sharing".
Supposedly.
I can understand this working for a while, but it's amazing how long it's been going on.
* One really wants the movie to be made, like a Clint Eastwood figure director who likes the script, regardless of the cost to self
* Director is new and potentially naive; agent is no good
* Director is new, not naive, and wants to make a brand for him- or herself in the movie world (and knows the movie isn't bound for a Saturday Syfy special... /snark)
I guess that's not completely true, going by the Scott Derrickson example, but it still seems strange to me.
But that project proved he could direct an acceptable film, which isn't as common a skill as you might imagine.
So once he'd done that, he had the chance to move up to the next budget range, $20ish million, plus or minus. For that, as I mentioned above, he probably got in the neighborhood of $500k. Maybe a little more, but certainly less than $1 million.
Then when that movie did extremely well, he went on to do The Day The Earth Stood Still, an $80 million dollar project. Whatever he got paid for that is highly variable, but it was likely a million or two.
As he mentions in the podcast, TDTESS did 80 million domestic, total of 240 global. Which made it a success in terms of money, but since the domestic was so low it wasn't perceived as such in the industry.
So he didn't move to the A list after that. He said he got offers for things like big franchise sequels, but his own dream projects weren't able to get the greenlight. If he'd taken the hired gun route on studio sequels, he said he'd probably make a couple million per.
So what he did instead was go and make his own film, cheap. He made the current movie Sinister for $3 million. Again he's back in the few hundred thousand range at most for salary. But this time, since it was his movie and he made it cheap, he's got real gross participation.
As he says in the podcast, after the movie hits a certain breakeven point (which it likely is very close to doing if it hasn't already), the money starts rolling in for him and he'll be "rich". From the podcast, it seems likely his deal on this project will let him get what would be called FU Money here.
It's not a terrible system, really. Directors aren't completely screwed, they do ok for themselves.
The real secret is to own the property yourself.
Plus a success like that meant that his up front pay was much higher on his next project.
ETA: Also, one wonders if relative clout just means asking for a much smaller fraction of gross. Better a tenth of a percent of gross than 10 percent of net.
Everybody knows they're worthless, but you take what there is.
Having said that, even experienced people might believe that net points would be worth something if a $19 million budget grosses $150 million. Especially on a project with no gross participants.
He might have been able to negotiate performance bonuses, extra money when gross milestones were hit. I've heard of those being a bit more common than gross points.
The bigger the budget, though, the more clout you need to get anything at all. I know of deals where gross points were offered to first timers on sub-million dollar budgets, but when you get up in the 10s of millions, it's a different game.
Less important hires could get 0.01% gross bonus etc.
Kind of like a startup.
I was, for a while, peripherally involved in the Canadian film industry, and even in that stunted and low budget arena, there was no shortage of warm bodies to fill any role at all, for virtually nothing but a credit or a line on a C.V.
In this artificial losses are generated by the movie theater piling each shell company up with faux "service charges".
There are lots of other tricks for avoiding taxes, but what is described is purely for screwing the artists.
If you take a loan, and don't return it for whatever reason (e.g. because the person to whom you owe it has died and has no heirs; or the bank that gave you the loan decides not to collect), the loan you previously received is instantly converted for tax purposes into your income, and you have to pay income tax on that.
The directors I know are unlikely getting shafted by this method, as their portfolios consist of mainly live births, cattle auctions, and high school sports. Still Art Institute graduates though.
But everyone knows you want a percentage of gross. When was this not known to people working in the industry?
This also adds to my totally unsubstantiated belief that a large portion of fortune 500 would be unprofitable without tax dodges
"No. We'll look for another director, there are thousands"
"Okay, I'll take 5% of net"
"Net" should never be a part of such negotiations.
Why even bother asking for it and putting it on a contract? Ask for tiny gross part or for small hourly raise, but treat net share exactly as zero.
Your marketing and distribution costs are real costs aren't they? I don't get how this is "Hollywood Accounting", it sounds like actual accounting.
Wouldn't that be caught in an audit? Aren't there (shouldn't there?) be laws prohibiting corporate-to-corporate transfers that are just money dumps not tied to legitimate verifiable expenses? I am ridiculously naive about this topic, but it seems the directors of these movies could sue if the studio were lying and exaggerating expenses?
>with some of the big studios, some of this money involves paying itself for advertising on its own properties.
The idea of opportunity cost applies to advertising; any advertising they do on their own properties is advertising they could have sold to somebody else. So it's clearly legitimate to count that as a cost.
When the game released, all the sales revenue went to the parent company and the only ones receiving bonuses were the two founders.
Which is it?
I more get an impression like those articles that call an entrepreneur who reached $1M in sales a millionaire, as though he/she had no costs and no taxes and gets to pocket all the gross. Nothing's more important in Hollywood than money and image so I just assume their intent is more along those lines. I'd be happy to "make" $9M for anyone who first gives me $10M then.
The executive summary is that if you did it, it would be fraud because you haven't made enough campaign contributions.
"Dub it off your man/Don't spend that ten bucks/I did it for the advance/The back end sucks."
Yes, the shell company makes $0 thanks to phantom expenses, but the main company gets all that money and that is profit.
So the shell has 0 tax liability and the main company faces all the tax liability.
It may screw the crew, but it doesn't matter for tax reasons. Correct?
It's just people who are promised "net points" that get screwed, not the tax man.