As we at the Briefcase love saying, there are only two types of people in the world. The first type of person watches a blockbuster film and thinks, "I rather like this James Bond character. I wonder what japes he will get up to next time." The second type is an accountant, who wonders what MGM’s financial statements might look like.
Because in Hollywood, making money and making a profit are not quite the same thing. Through a combination of internal fees, creative cost allocations, and warped definitions of "net profit", studios have a curious habit of turning even the biggest blockbusters into financial losses. In light of this, let’s do like Deep Throat and follow the money.
🧙♂️ My precious...
After The Lord of the Rings trilogy made nearly $3 billion worldwide, Peter Jackson was left confused. Sure, he was rich, but he wasn't quite as filthy as he thought he would be. So, he asked for an audit. Inevitably, New Line Cinema weren’t very keen on the idea, and instead they sounded the horn of Gondor. It was time for battle!
Naturally, it was a long and protracted scene – more akin to the great yawning Hobbit trilogy. In the end, the goodies won and, to the embarrassment of the studio execs, Jackson got a hold of the financial records before the two sides reached a settlement.
During the dispute, Bob Shaye, founder of New Line, swore off ever working with Jackson again, even on the upcoming Hobbit adaptation. But, as is often the case in both Hollywood and accounting, tempers eventually cooled, and Jackson returned to lay down three absolute stinkers back to back.
Peter Jackson won this house in the settlement and now lives there (he didn't, and doesn't).
🚔 Coming to America (and leaving a courtroom)
Then there’s Coming to America, a film that made hundreds of millions at the box office. Naturally, this led to a lawsuit.
Screenwriter Art Buchwald claimed the film was based on his original idea and, more importantly, that he hadn’t been paid what he was owed. Paramount rebounded by explaining that, even if that were true, there were no profits. Which is odd, given that the film made $300 million in revenue.
However, the studio was willing to prove it. Paramount presented detailed accounts showing that, once various costs, fees, and overheads were applied, the film had sadly proved a flop. The court took a look at this and described the accounting as "unconscionable.” As an accountant, I’m sure you’ll understand that this isn’t really something you want anyone to say about your work, let alone a court of law.
Paramount eventually settled the case for around $900,000 – thereby avoiding a legal precedent that might summon a long line of scriptwriters with caps in hand. Thankfully it’s all being done by ChatGPT now, so our valiant heroes are laughing all the way to the bank.
🐻 Winnie the Pooh’s insatiable hunger
If you think our cuddlier friends might be insulated from the allure of cruel, hard cash, think again. And if you were under the illusion that Disney is run on sunbeams and rainbow drops, we’re here to shatter that image. Yes, we’re brave enough to admit it, Winnie the Pooh has a dark side.
The bear has appeared in films, books, toys, games, clothing, you name it, he’s been there – and never once has he thought about putting his trousers on. So, it follows that he’s got more than a pot of honey stashed away.
This dispute centred around royalty payments, with claims that revenues from Pooh-related merchandise weren’t being fully reported, and that income was being hidden in other Disney earnings. At one stage, damages of up to $2 billion were being discussed. Oh bother!
The case dragged on for nearly two decades before eventually being resolved, bringing an end to one of Hollywood’s longest-running legal battles. However, Winnie the Pooh had to put his oceanside LA pad on the market, and pictures of his legendary pill-fueled meltdown are still online.
They may not look like it, but these are the faces of hardened criminals.
📈 The accounting bit
While all too often accountants are coerced by some wheeler dealer in sales to make the numbers look better, Hollywood innovates. Like your pal who earns a killing in the city but never gets the round in, they’re experts at putting on the poor mouth.
Studios do this using a few tried-and-tested techniques:
- Charging the film large internal distribution fees, which are often paid to themselves.
- Adding generous overheads and marketing costs, sometimes based on fixed percentages, rather than something more grounded.
- Moving costs between projects, so one film quietly absorbs another’s bad decisions.
This way, a film can make hundreds of millions at the box office and vanish before the people involved get their fair share.
🧠 Final thoughts
Hollywood is an industry full of creatives – actors, writers, directors, and accountants, all of them wonderful weavers of the tall tale. And like Daniel Day Lewis, you’ve got to really believe it to make the magic work, especially when you’ve just sworn to tell the whole truth, nothing but the truth, so help you, God.
So, the next time you watch the credits roll, popcorn kernels stuck between your molars as you slurp up the last gulp of fizzy drink, lend a thought to the people who really made it happen – the finance professionals.
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