The three main points of “Hollywood accounting” all have to do with operating costs and expenses, or simple said overhead. The three main points are production overhead, distribution overhead, and marketing overhead. All three of these categories take a percentage out of the gross revenue. A percentage of the gross revenue also is taking out for the A list celebrities. Then after these expenses are paid the second-tier actors, producers, writers, etc. are given their percentage from the net profit.
According to Carvell (1996) of Fortune magazine, the problem is that this net profit is calculated incorrectly. He states, “…net profits [from studios] reflect expenses that may or may not bear any relation to the actual cost of making a particular movie” (Carvell, 1996, Para. 3). Putting that more into perspective, studios always claim 15% for production costs, film distributers claim 30% in distribution costs, and studios claim 10% in advertising costs. These percentages are written in stone, they never change.
All of that in mind, Verrier (2015) writes a very interesting article in the LA Times talking about the many lawsuits with Hollywood studios. He stresses on the fact that everyone else seems to be making money except the artists. TV producer Glen Larson filed a lawsuit against Universal for withholding millions of dollars in profits from two hit TV shows he created, “Knight Rider” and “Magnum P.I.”. The article also talks about the music industry and how singers are robbed of their hard earnings as well because of the system.
In conclusion, I do not agree with “Hollywood accounting”. I believe it to be unfair, dishonest, and illegal. I understand that bills need to be paid but not at the expense of not paying the crew. In a normal business, you have to pay your employees, even if that means going in debt or bankrupt. In fact paying the actors, writers, etc. should already be included as an expense. REAL amounts of overhead should be deducted from gross revenue, and everyone should be paid from the gross revenue. It’s only fair.
References
CARVELL, T. (1996). Accounting, Hollywood-style. Fortune, 134(9), 48. Retrieved September 2, 2015, from http://web.a.ebscohost.com.oclc.fullsail.edu:81/ehost/detail/detail?vid=8&sid=2bf2596f-3f34-4d41-9bfa-64a18b3118dd%40sessionmgr4004&hid=4101&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#AN=9610287899&db=bth
Hollywood Accounting :: How It Works. (n.d.). Retrieved September 2, 2015, from http://www.creativemovieaccounting.com/how-hollywood-accounting-works.html
Verrier, R. (2015, June 23). 'Go-to' L.A. lawyer says Hollywood studios are shortchanging his clients. Retrieved September 2, 2015, from http://www.latimes.com/entertainment/envelope/cotown/la-et-ct-hollywood-lawyer-neville-johnson-20150623-story.html
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