Hollywood Accounting is how a production studio weasels out of paying royalties or anything else based on a percentage of profit: just overestimate your expenses, and bingo, there is no profit, or at least a lot less of it — at least on paper, even if the gross reaches into the billions. The "expenses" are charged to a separate entity or aspect of the filmmaking process, such as marketing, even though both entities involved are owned by the same film studio. So the studio basically "charges" itself "$100 million" in expenses, pays itself, and avoids having to claim that it made any gross profits. Some really outrageous cases have led to lawsuits.
For this reason, the smart actors in Hollywood will insist on getting a percentage of "gross points" in their contract, i.e. the money directly made before the studio profits are calculated.
Needless to say, this is mostly a Hollywood (and American) trope, since doing this outside the U.S. is considered fraud in many countries.note This trope is also pretty prevalent with the recording industry as well, with artists somehow ending up broke even after having a huge record that sold millions of copies.
See also Box Office Bomb where the movie makes low gross revenue for real, not just on paper, though the two have gone hand in hand a few times. Not to be confused with the Hollywood Style category of tropes like Hollywood Economics, Hollywood Law, etc.
- Dilbert described this trope as follows:
Dogbert: The net is what you land in after you find out you get no money and jump off a ledge.
Dilbert: What if there is no net?
Dogbert: It's gross.
- Used as a plot device in The Producers. The premise of the scheme is to massively oversell shares in a Broadway production, then create a deliberate flop, leaving the Villain Protagonists free to flee with the money.math
- Played for Laughs in Shakespeare in Love.
Philip Henslowe: But I have to pay the actors and the author!Hugh Fennymman: Share of the profits.Philip Henslowe: But there never are any?!Hugh Fennymman: Exactly.Philip Henslowe: Oh, Oh Mr Fennyman. I think you may have hit upon something!
- The Harder They Fall: Applied to boxing. Eddie is a has-been newspaper columnist who against his better judgment joined a scheme to puff up an untalented lummox named Toro into a championship contender, by having Toro's opponents Throwing the Fight every time. When this ends with Toro getting a championship bout in which he is pummeled, a jaded Eddie goes to Toro's manager Nick and demands to know how much Toro will get. Nick's account Leo shows Eddie a scrupulously maintained, accurate-to-the-penny set of books, which shows that after Nick's fee and Leo's fee and Eddie's fee and other fees and taxes and expenses and promotion, Toro gets a whopping $49.07. From a fight with gate receipts of over $1.2 million.
- In Bowfinger, Bobby Bowfinger insists that he can produce his film Chubby Rain on a miniscule budget, saying "Movies cost millions of dollars you say? That's after gross net deduction profit percentage deferment ten percent of the nut. Cash, every movie costs $2,184". As it turns out, they don't. Bowfinger goes broke, so he steals his girlfriend Daisy's credit card to finance the rest of the film.
- In the Sunny Randall book Blue Screen: Sunny, working as a bodyguard for an actress, is discussing Hollywood Accounting with an industry lawyer that she has been seeing on-and-off. She asks if this sort of practice is done. The response is "I know accountants who could convincingly demonstrate on paper that Gone with the Wind note showed no profit."
- John Scalzi's Agent to the Stars discusses this extensively, since the protagonist is an actor's agent by trade.
- In Falling Free, the corporation that made quaddies did some creative accounting to claim that all the R&D expenses involved in creating, raising and training the quaddies were legitimate business expenses for a totally unrelated business the company was doing in the same area, allowing them to cut the apparent profits of said business and reduce their tax burden. A change in the local tax code that stopped them from doing this anymore, followed by a technical breakthrough that reduced the utility of quaddies significantly, resulted in the quaddie project being scrapped (and the person in charge trying to kill all the quaddies).
- In That Wacky Redhead, this is what prompts George Lucas to sue Paramount Pictures over the issue of Journey of the Force's being one of the most successful movies ever, while George barely saw a cent of those profits. It ends up with victory for Lucas, and Paramount forced to pay 1 billion dollars.
- This was discussed in an episode of Freakazoid!, of all places. Our hero is advising the alien Mo-Ron about life on Earth, and says, "Always ask for a piece of the gross. Not the net. The net is fantasy." While he says this, he is signing a contract with checkboxes marked "Net (sucker)" and "Gross (better get a lawyer)".
Real life examples:
- Warner Bros.' first Batman movie, despite earning $253 million at the American box office, posted a $36 million loss when the accounting was done. According to WB's formula, the studio would have had to take in an additional $150 million before the movie could begin turning a profit. Many criticized the production company for using a "rolling break-even point" to justify the film's losses. According to the Los Angeles Times (who did their own investigation), the film still should have made close to $90 million in profit by the time all expenses were paid. However, Jack Nicholson earned around $60 million for his role due to his percentage.
- Battlefield Earth was the film Franchise Pictures founder Elie Samaha said would make his company a force worth taking seriously. Battlefield Earth, however, is notoriously bad, and it later transpired that Franchise existed to "over-budget" bad movies and keep the excess as profit. After this stinker, the FBI closed in and reclaimed the $100 million...er, $75 million...er, $44 million spent. The lawsuit that came with the FBI eventually blew Franchise Pictures apart.
- Paramount Pictures once tried to argue that it didn't have to pay royalties to screenwriter Art Buchwald for a script idea that he claimed was stolen from him. Buchwald wrote a treatment for a story idea in 1982, and pitched it to Paramount brass as a possible comedy vehicle for Eddie Murphy. Paramount shelved the treatment after several failed attempts at making a script out of it, but pulled it out again in 1987, and ended up developing the comedy Coming to America based on said treatment (with Murphy, who was starring in the film, given sole story credit). Buchwald sued Paramount, and a jury agreed that Paramount breached their contract and the two stories were remarkably similar. Paramount subsequently argued that it spent so much money on marketing and development that they made no net profit. The court found Paramount's actions "unconscionable", noting that it was impossible to believe that Coming to America, which grossed $350 million, failed to make a profit, especially since the actual production costs were less than a tenth of that. Paramount settled with Buchwald for $900,000, rather than have its accounting methods closely scrutinized.
- In 2007, Paul Haggis sued the producers of the 2005 film Crash for not giving him $4.7 million in unpaid royalties. Studio executives argued that the movie (which was made for $7.5 million, and grossed ten times that amount at the box office) wasn't profitable when the accounting was done. The co-writer (Bobby Moresco) and co-producer (Cathy Schulman) also sued for royalties.
- The film's producer, Bob Yari, later went bankrupt over the suit (along with a number of money-losing projects he self-distributed). He was later sued in 2012 for the same thing over the same movie.
- In April 2017, Sylvester Stallone sued Warner Bros. over alleged unpaid royalties from Demolition Man. In the lawsuit, it is alleged that Stallone's production company, Rogue Marble, attempted to obtain a profit participation summary from the studio in 2014, having not received one since 1997. The following year, the production company reportedly received a short statement from the studio claiming that the film had a deficit, despite earning more than $150 million worldwide gross against a $57 million budget. Some commentators have suggested that if the case ends up going in Stallone's favor, it could end up leading to a crackdown on other studio accounting schemes.
- Michael Moore took the Miramax Films founders Bob and Harvey Weinstein to court over an alleged scheme to cheat Moore out of paying any royalties to him from the receipts of Fahrenheit 9/11. They eventually settled in undisclosed terms.
- Novelist Winston Groom got nothing from the Forrest Gump film, and thus refused to sell the screenplay rights for the sequel. Even if they fixed it, it's probably too late now — Eric Roth was working on it anyway, but handed it in one day before 9/11, at which point they just gave the hell up.
- Groom actually used the studio's accounting tricks against them in a Take That! moment, telling them he was refusing to sell them the sequel rights because "I cannot in good conscience allow money to be wasted on a failure," cheating them out of the potential profits that would have come from a surefire hit sequel.
- Sigourney Weaver was told that the studio lost money on Ghostbusters (1984), despite it being one of the most successful films ever made, and thus she wasn't going to get any royalties from it. Supposedly she showed up with an army of lawyers and accountants to check the books, and the studio offered her an exorbitant amount of money to appear in the sequel to keep her from looking at them.
- Christopher Lee was hoodwinked into doing most of the Hammer Dracula pictures because the studio would tell him they'd already arranged filming and hired all the crew, and if Lee didn't agree to play Dracula they'd all be out of a job. Oh, and since they'd already made all the arrangements for paying the crew and finding locations, Lee would have to agree to not be paid full salary for the picture. Knowing this explains immensely why he didn't like to talk about that part of his career in later life.
- Harry Potter and the Order of the Phoenix came under fire mid-2010 after a Warner Bros. accounting report was leaked.
- New Line Cinema was sued over The Lord of the Rings by Peter Jackson (leaving The Hobbit in Development Hell for several years), the Tolkien estate, and over a dozen actors.
- Eric Idle, on his Exploits Monty Python concert tour at the Turn of the Millennium, noted that the troupe's final film, Monty Python's The Meaning of Life, was the only one made with major studio backing (Universal Pictures)...and thus the only one that apparently didn't turn a profit. So in this tour's version of "The Crimson Permanent Assurance", there's an additional verse about studio accountants.
- The cast and producers of the film My Big Fat Greek Wedding (with the exception of lead actress Nia Vardalos) ended up going to court to sue Playtone Pictures, HBO and Gold Circle Films for unpaid profits. The studios claimed the film lost $20 million, despite being one of the highest-grossing independent films of all time (and a record-holder for highest-grossing independent for several years).
- Universal got into trouble with a producer of 1985's Out of Africa when he discovered that 31 years after its release, he still had received no payment from his involvement in the movie.
- Ben Affleck agreed to take his salary for Pearl Harbor from the net profits. Oops.
- Gary Oldman has yet to be paid for The Professional.
- According to David Prowse (the man in Darth Vader's suit), Lucasfilm still hasn't paid him residuals for his work in Return of the Jedi, despite the film earning over $570 million at the box office (not counting home media releases) against a $32.5 million budget.
- This was the origin of the Stan Lee vs Marvel Enterprises lawsuit: Stan's contract said he was entitled to 10% of Marvel's profits from their movies ... and Marvel's share of the net from Blade turned out to be zero. When Marvel got wise and started asking for a percentage of the gross, they tried to claim that Stan's contract didn't cover that. A court of law disagreed.
- None of the actors from The Rocky Horror Picture Show have received any royalties from home video/DVD releases. This is the primary reason why Susan Sarandon (Janet) has bad words to say about the movie, rather than a case of Old Shame.
- Because the first Saw film had a smaller budget than its sequels, Cary Elwes signed on to play Dr. Gordon in exchange for a percentage of the total gross. When the film proved to be a monstrous hit, Elwes felt he had been shortchanged (receiving only 1% of the profits) and refused to return for the sequel or even allow his image to be reused.
- Fortunately, Elwes was able to come to an agreement with Lionsgate Films and filmed two short scenes in The Final Chapter explaining what happened to Dr. Gordon and where he was now. As well as a third scene, he was revealed to have become Jigsaw's true successor.
- The creators of This Is Spın̈al Tap launched a lawsuit against Vivendi, who owns the Spinal Tap intellectual property, in 2017, alleging that the conglomerate stiffed them badly on royalties. How bad? According to a GQ article, they were each only paid a combined $179 (yes, three figures) in merchandising and music royalties over a 29-year period.
- Paramount and CBS have never paid any of the Star Trek actors for the use of their image in any of the merchandising that has been sold for the series, claiming that it has lost money in all of them.
- J. Michael Straczynski got screwed out of his cut of the profits from Babylon 5. Fortunately, he was Doing It for the Art anyway.
JMS: The show, all in, cost about $110 million to make. Each year of its original run, we know it showed a profit because they TOLD us so. And in one case, they actually showed us the figures. It's now been on the air worldwide for ten years. There's been merchandise, syndication, cable, books, you name it. The DVDs grossed roughly half a BILLION dollars (and that was just after they put out S5, without all of the S5 sales in). So what does my last profit statement say? We're $80 million in the red. Basically, by the terms of my contract, if a set on a WB movie burns down in Botswana, they can charge it against B5's profits.
- Harlan Ellison, in a clip from his film Dreams With Sharp Teeth, also discusses his involvement with Babylon 5, notably when Warner Bros. asked him to provide clearance rights for an interview he did during the show's production for inclusion on the DVD set. When he asked what he would be paid, the studio told him that they didn't have enough money in the budget to pay him royalties (in addition to telling him that he'd have to go buy a copy of the DVD set in a store because they couldn't justify sending him a set).
- In 2010, Rysher Entertainment, who produced Nash Bridges, claimed it didn't have to pay royalties to lead actor Don Johnson because they never made a profit from the show and didn't have to share anything with the actor. Johnson, whose contract stipulated he owned half the show's copyrights, sued the company and won $23 million.
- Disney got itself in trouble with Bill Nye in 2017 when he discovered they were not honoring a contractual agreement to pay him royalties for distribution of Bill Nye the Science Guy.
- In February 2019, Fox was ordered to pay $179 million to the producers and stars of Bones for attempting to cheat them out of royalties when they sold the streaming rights to the series to Hulu. Although a judge later overturned the punitive damages charge, it still had the effect of putting "self-buying" deals in serious scrutiny.
- In 2010, Disney was forced to shell out $319 million to Celador International after a court ruled Disney did not abide to a profit-sharing agreement with them in regards to licensing Who Wants to Be a Millionaire? in the US, rejecting Disney's claim that they didn't make a penny from the deals. To this day, it remains the largest financial penalty inflicted upon a studio accused of accounting fraud.
- "Hollywood accounting" is what led to the Writer's Guild of America strike in 2007. The WGA (representing hundreds of film and television writers), in a nutshell, decided to strike because the Alliance of Motion Picture and Television Producers were deadset against increasing DVD royalties for said writers. At the end of the strike, the WGA accepted a minor increase in royalties, far below what they had originally set out to achieve.
- The Stop Online Piracy Act/Protect-IP Bill backlash in 2012 resulted in the legal sector criticizing the Motion Picture Association of America for creative accounting that claimed Hollywood lost $58 billion in profits due to online piracy. One legal report showed that the actual amount of money lost to piracy was less than 1% of the original claim, that the only real thing piracy affected was redistribution of disposable income for other purposes, and that the notion that money not spent on movies disappears from Hollywood wasn't true.
- The SOPA issue was also parodied in To Boldly Flee where a producer claims his writers aren't getting any money thanks to piracy...despite the fact that he keeps them chained in closet-offices and admits to having multiple houses himself. The Big Bad is actually a studio head who prefers big-money-making cheap schlock to actually putting effort into films at the risk of them not making a return, undermining things more for that side.
- Lynda Carter has mentioned this in regards to her time on Wonder Woman. Alongside not getting any money from reruns (which isn't exactly rare; back before people saw the financial potential of syndication, no one really thought to add a clause regarding royalties from reruns in their contracts,) she also saw nothing from merchandising. She specifically recalls them making a likeness of her face and created a run of Wonder Woman dolls. After the first run, they took her name off of it, marketed later runs as a generic Wonder Woman doll, and she never saw any profit from it.
- In 2014, DC Comics announced new royalty policies; payments to writers are now based on the publisher's net revenue on a particular book as opposed to a percentage of the cover price. Colorists are now eligible for these royalties, but overall the pool of royalty funds are declining, much of it admittedly because of a higher sales threshold.
- Taylor Swift withdrew her albums from Spotify because of its low royalty payments of pennies on the dollar.
- She then threatened to do the same for Apple Music because Apple didn't pay any royalties during the three-month trial period for new users. Apple quickly changed their policies as a result.
- During Chris Jericho's time in WCW wrestlers got a royalty for merchandise with their likenesses. He discovered the hard way that he was being cheated when a relative bought a Chris Jericho action figure from a big retailer and it rang up as a Kevin Nash action figure instead, which gave Nash the royalty.
- The major reason that both Backstreet Boys and *NSYNC sued and ultimately parted ways with the late Lou Pearlman was that he was embellishing their contracts so that over half the money they earned from gigs and sales went to him directly and that he even gave himself royalties from the songwriting. Even after that, he was also running a massive Ponzi scheme that defrauded people who trusted him over $300 million, which lead to his arrest, conviction and death in prison for fraud.