This is exactly how record deals work as well, I can tell you first hand. The added kick in the nuts which isn't even mentioned is that if the project starts to come close to the level of profit where the artists would get payment - all the studio/label has to do is spend more money on additional, marked-up promotion and the project goes deeper into "debt."
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).
I truly look forward to the day when supporting (by paying real money) individual creators and independent teams for music, movies, animation, games, and books will be commonplace in the general public. In tandem, I hope that this will spur great creations to come forth that are not bound by the traditional red tape and truly messed up business models of today's media businesses.
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.
What do record labels bring to the table now? They provide the capital to record an album (or at least the studio that can record it), and a complex distribution channel to get albums on shelves and tracks on the airwaves.
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.
>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.
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.
Honestly the modern moral of the story is bandcamp or indiegogo or kickstarter or some other service. I'll be the first to say it is going to be much MUCH harder than taking a record deal but we do live in a time where its possible to stay away from the big industry folks and strike gold (or out) on your own.
I wonder what it would take to set up a "recording studio as a service" type place that would handle all the tech stuff for a band and let them do promotion themselves, free from label control?
The record companies real problem with filesharing is that they feel that not paying musicians is their own special prerogative and it annoys them for everybody else to be getting in on the act, especially in a manner so unprofessional that it doesn't even bother including absurdly written contracts.
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".
I'm not sure about this specific example, but I could see a couple of reasons:
* 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'm going to guess that its because there's a few "names" in the industry who do actually get a real share of the profits, probably because they have a lawyer (or more likely, a legal staff) to make sure that all the details are negotiated with their interests in mind. Like anything else, you need a little luck and a lot of work to get to that point.
I was going to say: He should have fired his agent for agreeing to any cut of the net. I thought everyone at this point knew that you always demand points on the gross just because no one every makes net points.
I'm surprised using some sort of hybrid gross/net points isn't more common. Like 5% of gross over $100M. Studio doesn't lose if the movie isnt a hit, and the employee can't get screwed by creative accounting.
The difference is that tax shelters usually aren't used to deprive your staff of salary, they're used to deprive the government of tax revenue. This is both.
This reminds me of the method used by Starbucks to avoid paying tax in the UK [1]. They set up their UK operations as a separate legal entity, and then charge it considerable licensing fees for the use of the Starbucks brand. This way, the UK branch appears to be making a loss on paper, when it is actually generating considerable revenue.
This is as good a time as any to suggest Kevin Smith's "Smoviemakers" podcast for anyone who is interested in the art and business of movie production. It's really a great listen, even when he's talking to people I'm not a huge fan of (such as Scott Derrickson --nothing against him, but I just haven't seen any of his movies)
Shouldn't this say, how a $19 million movie that spends $50 million in advertising and $250 million in distribution can make $150 million and not be profitable?
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.
The point is a lot of those "figures" aren't real or objectively driven, they're just numbers being shuffled around within the company to make the movie seem more expensive. There's a wikipedia article on it that may make the concept more clear.
So, as someone who's never been involved or close to the sale of a heavily funded startup, this sounds on the face of it similar to taking equity in a startup that then raised more money and diluted that equity and then was sold in a deal where that equity ended up turning into nothing—I've read a fair number of stories on here that toss around terms like "preferred stock" or whatnot, but still don't really know how the sausage is made. It sounds an awful lot like this, though: the people who put in the most money also have tricks of making sure they get paid, while most of the people doing the work don't have the clout to get in on it.
While the general idea of this is obviously gross and greedy, this part makes perfect sense:
>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.
Similar thing happened to a friend of mine who worked at a game development startup. A company was set up for that game, and the whole crew of developers were hired by it, while the two "founders" held the parent company. Everyone worked for low-to-no wages under the promise that they would see bonuses based on sales.
When the game released, all the sales revenue went to the parent company and the only ones receiving bonuses were the two founders.
I cringe every time a movie or event is reported as having "made" its gross ticket sales number. Typically 1/2 off the top goes to theaters themselves, and then all these accounting games begin. Maybe the top line is the only relatively non-fictional number but they could at least report it for what it is: ticket sales.
I've read that these days many theaters only get 10% of the ticket sales for the first week or so at least on major films, (before dropping substantially, combined with much shorter runs. So the theaters get less than they used to as far as i know, especially that first week or so.
[+] [-] jakejake|13 years ago|reply
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).
[+] [-] hkmurakami|13 years ago|reply
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.
[+] [-] neotek|13 years ago|reply
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.
[+] [-] tsotha|13 years ago|reply
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.
[+] [-] theevocater|13 years ago|reply
[+] [-] Natsu|13 years ago|reply
[+] [-] ktizo|13 years ago|reply
[+] [-] antr|13 years ago|reply
[+] [-] lquist|13 years ago|reply
[+] [-] beagle3|13 years ago|reply
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.
[+] [-] rmc|13 years ago|reply
[+] [-] aptwebapps|13 years ago|reply
I can understand this working for a while, but it's amazing how long it's been going on.
[+] [-] tomrod|13 years ago|reply
* 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)
[+] [-] ojbyrne|13 years ago|reply
[+] [-] waterlesscloud|13 years ago|reply
Plus a success like that meant that his up front pay was much higher on his next project.
[+] [-] cdk|13 years ago|reply
[+] [-] fatbird|13 years ago|reply
[+] [-] SilasX|13 years ago|reply
[+] [-] unabridged|13 years ago|reply
[+] [-] jivatmanx|13 years ago|reply
In this artificial losses are generated by the movie theater piling each shell company up with faux "service charges".
[+] [-] azylman|13 years ago|reply
[+] [-] rickyconnolly|13 years ago|reply
[1]. http://www.bbc.co.uk/news/business-19967397
[+] [-] MartinCron|13 years ago|reply
http://smodcast.com/channels/smoviemakers/
[+] [-] knowaveragejoe|13 years ago|reply
[+] [-] sukuriant|13 years ago|reply
[+] [-] tomrod|13 years ago|reply
[+] [-] lifeisstillgood|13 years ago|reply
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
[+] [-] vacri|13 years ago|reply
"No. We'll look for another director, there are thousands"
"Okay, I'll take 5% of net"
[+] [-] hermannj314|13 years ago|reply
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.
[+] [-] HelloMcFly|13 years ago|reply
[+] [-] fpp|13 years ago|reply
http://en.wikipedia.org/wiki/Hollywood_accounting
[+] [-] klodolph|13 years ago|reply
[+] [-] majormajor|13 years ago|reply
[+] [-] EricDeb|13 years ago|reply
[+] [-] mistercow|13 years ago|reply
>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.
[+] [-] bathat|13 years ago|reply
[+] [-] unknown|13 years ago|reply
[deleted]
[+] [-] undantag|13 years ago|reply
When the game released, all the sales revenue went to the parent company and the only ones receiving bonuses were the two founders.
[+] [-] Evbn|13 years ago|reply
[+] [-] TwoBit|13 years ago|reply
[+] [-] randomfool|13 years ago|reply
[+] [-] Evbn|13 years ago|reply
Which is it?
[+] [-] OldSchool|13 years ago|reply
[+] [-] adrianscott|13 years ago|reply
[+] [-] Evbn|13 years ago|reply
[+] [-] andreasvc|13 years ago|reply
[+] [-] noonespecial|13 years ago|reply
The executive summary is that if you did it, it would be fraud because you haven't made enough campaign contributions.