
LucasFilm Tells Darth Vader that Return of the Jedi Hasn’t Made a Profit - thinker
http://www.slashfilm.com/lucasfilm-tells-darth-vader-that-return-of-the-jedi-hasnt-made-a-profit/
======
mmaunder
Less than 5% of movies actually show a net income (or net profit as the
article calls it). It's called Hollywood Accounting:

<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>

~~~
scotu
The effects of this accounting practice looks a lot like the claimed effect of
piracy...

~~~
jordan0day
This is a very good insight. I wonder how often the figures that get flashed
around about how much money Hollywood is losing due to piracy are drawn
directly from these fictionalizations created for an entirely separate
purpose.

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patio11
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."

~~~
ZachPruckowski
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.

~~~
ahlatimer
Except that it isn't the government suing these companies, it's the people
named in the credits.

~~~
ZachPruckowski
Right (I blame 1AM posting for my error), but counting on $DISTRICT_JUDGE to
bring down the hammer is equally over-optimistic. If one can barely get a
judge to wade in on "a clearly fraudulent document was submitted to your
court" when it undermines a foreclosure, I'm pessimistic about the idea that
$GUESS is going to be show-stopping.

~~~
philh
The hope is that Hollywood would settle rather than take that risk. It's
happened at least once before. Perhaps with higher stakes they would change
strategies.

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bfe
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.

~~~
bfe
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.

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noonespecial
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.

~~~
JoeAltmaier
You can't be the 1st to change; you'd get run over.

~~~
rbanffy
Only if you were unable to actually turn a net profit.

What would happen instead is that more actors and writers would be willing to
work with you because they knew they'd get a fair share of the whole deal.

~~~
roc
The problem there, is that the talent that would truly help you succeed can
already demand gross participation from any studio. And the rest, while they
would undoubtedly _prefer_ to work for an honest studio, would climb over one
another to land almost _any_ work regardless of accounting policy.

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Bud
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?

Shameful.

~~~
socratic
I hate citing Reddit, but this un-sourced imgur link makes it seem like he's
not such a bad guy, no?

<http://i.imgur.com/lTvOg.jpg>

~~~
chc
Donating 5% of your net worth to charity is praiseworthy, but it's not really
anything special, particularly for people in that range of disposable income.
He could probably release another boxed set of the original trilogy and make
the entire amount back. Every active Mormon donates twice that much to their
church.

~~~
thebooktocome
The Mormon church is hardly a laudable "non-profit" charity.

~~~
jessriedel
The point wasn't the amount of good being done with the money, it was the size
of the sacrifice being made as it affects the life of the donor.

Likewise, suppose I donate 5% of my income to charity A which is 100 times as
effective at saving lives as charity B. My neighbor, of similar means, donates
50% of his income to charity B because of his mistaken belief that charity B
is just as good. Now, I may know he's making a mistake, and there's no way I
would choose to send my money to charity B, but my neighbor is still more
_honorable_ for making such a large sacrifice for something he thinks is
right.

~~~
thebooktocome
That's a truly bizarre definition of honorable. If that's actually what being
honorable actually means to people, then I no longer want to be there.

In my book, you don't get any points for merely thinking you're right. You
only get points for actually being right.

~~~
chc
It makes no sense to judge people or award "points" for things wholly outside
their control. As human beings, we aren't capable of perfect knowledge, and we
don't have total control over most situations. So judging people on "actually
being right" has limited utility. You may as well decide to slap a random
stranger in retaliation for the weather being inclement.

For example: If Gandhi had been assassinated earlier, would that have made him
a worse man?

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larrik
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.

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kprobst
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.

~~~
philwelch
Alec Guinness was a Serious Actor with plenty of impressive film appearances
under his belt. Of course he had more pull.

~~~
ErikCorry
Maybe the fact that people would have noticed if they had replaced him in the
sequels also strengthened his bargaining position.

~~~
officemonkey
I don't think Sir Alec ever thought there would be sequels. Especially since
he dies in the first movie.

I think it's just a matter of good bargaining. At the time, Guinness had been
in the movies for three-plus decades. Prowse's career hovered just above the
"extra" category. Prowse probably signed whatever contract they gave him;
Guinness probably dictated terms.

~~~
JonnieCache
_> Prowse's career hovered just above the "extra" category._

At the time, Prowse was most famous as the Green Cross Code Man, from the UK's
pedestrian safety public service films of the time.

<http://www.youtube.com/watch?v=CRUBMBi_lp4>

------
Tichy
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 am sure there are many more tricks like this...

~~~
chopsueyar
If there was an exchange, there was consideration, and this seems more like a
barter, not a free give-away.

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
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.

~~~
wheels
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..."

~~~
rdl
Tech contracts are pretty transparent by comparison.

Aside from value of options (which most people consider to be $0-$20k for the
average $100-150k/yr job), all the other benefits of working in tech are
straightforward and employee-favorable.

In an early stage startup, you're not likely to see worse than 2x
participating, and 1x non is the standard for Series A financings now.

------
malbs
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?

Wouldn't it be nice.

------
veyron
I remember reading something similar in the music industry, written by
courtney love. Anyone have a link?

~~~
patio11
Google [Courney Love RIAA], first result:

[http://www.salon.com/technology/feature/2000/06/14/love/prin...](http://www.salon.com/technology/feature/2000/06/14/love/print.html)

~~~
veyron
I should have guessed that it would be RIAA that would point me to the article
:P

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zalew
it's a link from an article which was here yesterday
<http://news.ycombinator.com/item?id=2981442>
[http://www.filmschoolrejects.com/features/6-things-the-
film-...](http://www.filmschoolrejects.com/features/6-things-the-film-
industry-doesnt-want-you-to-know-about.php/all/1)

------
taylorbuley
Possible this is due to the kind of "creative accounting" detailed here:
[http://www.deadline.com/2010/07/studio-shame-even-harry-
pott...](http://www.deadline.com/2010/07/studio-shame-even-harry-potter-pic-
loses-money-because-of-warner-bros-phony-baloney-accounting/)

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Maven911
Its an interesting perspective that seems to suggest the opposite view from
the 'other' article on the front page about contracts: Just Sue Me

~~~
bwillard
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.

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spullara
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?

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microtherion
TL;DR: He finds their lack of profit disturbing

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chopsueyar
Best quote from article:

"Can you imagine the hedlines if Darth Vader sued George Lucas?"

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zandorg
I was expecting a video: 'nooooo!'

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ChrisArchitect
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.

