-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:
Another example of how criminal it is: A major studio will pay Technicolor $25 million annually for an exclusivity fee. Then Technicolor will charge inflated rates to the studios, so the films will appear to lose money.
Why isn't there an enterprising law firm going through the credits of all the Star Wars (and similar-vintage films with ongoing commercial potential), contacting every person on the list, and telling all the retired ones "There is a pot o' money with your name on it if you sign these papers which let us sue them for residuals on your behalf."?
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."
Look at how hard it is to get traction on investigations into the current foreclosure/securitization boondoggle - it's taken 3 years for judges to actually start looking, the federal regulators are completely uninterested, and maybe 4 state AGs out of 50 have even started looking. And these are obvious and clearcut violations of pretty straightforward laws. Their reputations and legal teams have been a buffer against all sorts of suits and investigations.
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.
Why isn't there an enterprising law firm going through the credits of all the Star Wars (and similar-vintage films with ongoing commercial potential), contacting every person on the list, and telling all the retired ones "There is a pot o' money with your name on it if you sign these papers which let us sue them for residuals on your behalf."?
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.
I could easily see such an enterprising law firm becoming the type of patent trolling law firm that everyone here dispises. While this is an extreme case of someone not getting a dime when he clearly deserves it, I am sure there is enough book doctoring out there that simply going after $STUDIO/$FILM/$TVSHOW could become profitable if the threats are there and the fear of where the monies should be gets uncovered.
> Why isn't there an enterprising law firm going through the credits of all the Star Wars (and similar-vintage films with ongoing commercial potential), contacting every person on the list, and telling all the retired ones "There is a pot o' money with your name on it if you sign these papers which let us sue them for residuals on your behalf."?
One of my intellectual property law professors, with fifty years experience in just about every kind of I.P. licensing scenario possible, all over the world, recommended it's almost always best in an I.P. license to ask for a flat fee first, and a small percentage of gross revenue with a short, hard reckoning date second. The more bargaining power you have, the higher you should bump up your position for upfront flat fee first and percentage of gross revenue second. Agreeing to a percentage of "net profits" is almost always a commitment to sue the other party down the road or get nothing. Whatever I've learned since then has left his recommendation intact.
Just to add, there are a million different possible situations, and "almost always" is a big exaggeration here, and I don't know anything about the particular case in the post. But the point remains; there is often virtue in simplicity.
I'm always fascinated by the way institutionalized dishonesty creeps into entire industries. From used car salesmen to film moguls, once a certain practice has ossified over the years into "everyone in the biz does it", practices that would result in jail time in other industries are simply accepted as business as usual. Even more curious, everyone to the man knows its wrong, but no one moves to change it. The emperor has no clothes and we just like him better naked.
Geez, Lucas. Have you no sense of decency, sir, at long last? Have you left no sense of decency?
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?
"... I accuse the corporations, who oppose the moral rights of the artist, of being dishonest and insensitive to American cultural heritage and of being interested only in their quarterly bottom line, and not in the long-term interest of the Nation. ..."
There's more, including calling any such distortion of [his movie?] art as barbaric.
Yes because he clearly knew they would be such a success at the time he was negotiating contracts. He made the standard contracts, which is what you have to do, because you can't just change the terms later based on how successful something is or isn't.
This isn't a case of Lucas being exceptionally greedy. Maybe its a case proving how 1-sided Hollywood contracts are, though.
I don't know why this is such a surprise to everyone. Outside of the startup scene, showing net profit is a Bad Thing. It increases liability to taxes and to employees[1], etc.
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 seem to remember Alec Guinness hit the jackpot on the SW franchise by demanding a % of the profit (gross?), so I assume this guy had a different contract. I suppose Guinness had a lot more pull and negotiating leverage than a dude whose primary contribution to the films was to be tall.
Even shares on "gross profit" can fail: it can be beneficial for the publisher to give away the product for free. I've had this happen to a J2ME app, which the publisher gave away for free in exchange for advertising (they were building presence and reputation by this).
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 never cease to be amazed at how honest and forthright everyone in the (top tier) of the startup industry is, vs. the entertainment, government contracting, small business, etc. space. To say nothing of finance or politics.
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.
Are you really suggesting that it's rare for employees to get hosed on options because they don't understand the terms in their contract? Because that's about the closest parallel I can think of. Net points sound like the showbiz equivalent of liquidation preferences. "Oh, no, you don't actually get a percentage of the $50 million sale because there are these investors that have a different kind of stock that says that they get at least a 5x return before you get anything..."
I disagree, look at the options given to Skype employees [1], being in the valley doesn't magically mean that your safe from the dark side of the force.
Like it or not, this is just the way capitalism works. It pays very handsomly to be corrupt, or to be a cartel member in a self-regulated industry. And it will not get better until we move to a new economic paradigm.
Wouldn't it be nice if Lodsys got out of the patent troll game, and into using it's lawyers to fight for net-profit-residuals for people who worked on films that earned huge profits over time?
The Problem With Music by Steve Albini (the original article Courtney Love was inspired by in her attack on the RIAA): http://www.negativland.com/albini.html
I disagree that it is the opposite. In fact I think it is more like LucasFilm is saying Just Sue Me. From the article Seth (I am assuming he is a reliable source as I know nothing about the film industry) seems to think that if LucasFilms was sued that they would lose (or settle), but luckily people, specifically Darth, are either to lazy or the amount they would win wouldn't cover the legal expenses of suing. So in effect LucasFilms is pretending like the risk of litigation isn't there and it is working out OK for them so far. Just like the experiences of PUD.
I wonder if you add in the marketing and distribution cost for bit torrent & associated search sites you can find that the movie companies should be paying them?
olllld article from 2009 rehashing longtime complaints of bitter Vader suit wearing actor. He didn't get a cut of the only-named-in-merchandise Ewoks toys. Boohoo.
[+] [-] mmaunder|14 years ago|reply
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://en.wikipedia.org/wiki/Hollywood_accounting#Examples
[+] [-] mattm|14 years ago|reply
http://www.techdirt.com/articles/20100708/02510310122.shtml
Geez, a $57 million dollar loss in interest. How is that even possible?
[+] [-] scotu|14 years ago|reply
[+] [-] fialk|14 years ago|reply
[+] [-] patio11|14 years ago|reply
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."
[+] [-] ZachPruckowski|14 years ago|reply
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.
[+] [-] anigbrowl|14 years ago|reply
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.
[+] [-] elliottcarlson|14 years ago|reply
[+] [-] unknown|14 years ago|reply
[deleted]
[+] [-] anamax|14 years ago|reply
Because they'd lose.
[+] [-] bfe|14 years ago|reply
[+] [-] bfe|14 years ago|reply
[+] [-] noonespecial|14 years ago|reply
[+] [-] usedtolurk|14 years ago|reply
[+] [-] JoeAltmaier|14 years ago|reply
[+] [-] Bud|14 years ago|reply
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.
[+] [-] Joakal|14 years ago|reply
There's more, including calling any such distortion of [his movie?] art as barbaric.
http://savestarwars.com/lucasspeechagainstspecialedition.htm...
[+] [-] socratic|14 years ago|reply
http://i.imgur.com/lTvOg.jpg
[+] [-] phxrsng|14 years ago|reply
This isn't a case of Lucas being exceptionally greedy. Maybe its a case proving how 1-sided Hollywood contracts are, though.
[+] [-] danssig|14 years ago|reply
[+] [-] larrik|14 years ago|reply
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.
[+] [-] kprobst|14 years ago|reply
[+] [-] philwelch|14 years ago|reply
[+] [-] Tichy|14 years ago|reply
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...
[+] [-] chopsueyar|14 years ago|reply
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.
http://www.irs.gov/taxtopics/tc420.html
[+] [-] rdl|14 years ago|reply
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.
[+] [-] wheels|14 years ago|reply
[+] [-] GeneTraylor|14 years ago|reply
[1] http://techcrunch.com/2011/06/26/skypes-worthless-employee-s...
[+] [-] autarch|14 years ago|reply
Founders may not give their employees good deals because they just make stuff up and don't do any analysis.
[+] [-] jarek|14 years ago|reply
[+] [-] wavephorm|14 years ago|reply
[+] [-] malbs|14 years ago|reply
Wouldn't it be nice.
[+] [-] veyron|14 years ago|reply
[+] [-] patio11|14 years ago|reply
http://www.salon.com/technology/feature/2000/06/14/love/prin...
[+] [-] wyclif|14 years ago|reply
[+] [-] jackvalentine|14 years ago|reply
[+] [-] unknown|14 years ago|reply
[deleted]
[+] [-] clobber|14 years ago|reply
[+] [-] zalew|14 years ago|reply
[+] [-] taylorbuley|14 years ago|reply
[+] [-] Maven911|14 years ago|reply
[+] [-] bwillard|14 years ago|reply
[+] [-] spullara|14 years ago|reply
[+] [-] microtherion|14 years ago|reply
[+] [-] chopsueyar|14 years ago|reply
"Can you imagine the hedlines if Darth Vader sued George Lucas?"
[+] [-] zandorg|14 years ago|reply
[+] [-] ChrisArchitect|14 years ago|reply