Main Line Pictures, Inc., versus Kim Basinger Hollywood produces a lot of entertainment, including accounting entertainment! In early 1993, the Superior Court of the State of California (Los Angeles County) heard a litigation suit filed by Main Line Pictures, Inc., against the actress Kim Basinger for breach of contract.

At issue was Basinger’s decision to withdraw from a film project after making a verbal commitment to appear in it. The film, released in September 1993, was Boxing Helena.

Didn’t see it? That was the point of Main Line’s lawsuit: the studio claimed a lot of people didn’t see Boxing Helena because the actress who replaced Basinger (Sherilyn Fenn) did not have nearly the same box office appeal.

Main Line claimed damages due to an incremental difference in revenues and costs, which led to actual profits being less than expected, all due to not having Basinger in the film. An expert economist and an expert in film finance were called to testify regarding the appropriate size of the incremental revenue and cost differences. Hence, the case essentially became an accounting argument.

Main Line’s lawyers argued that their client lost between $5.1 million and $9.7 million as a result of Basinger’s withdrawal. The $5.1 million loss calculation is shown below (all amounts are in millions).

To understand the numbers above, you need to know a couple of things about revenues and costs in the movie business and this film in particular.
• It is extremely difficult to predict what a film will actually earn when released. There are plenty of examples of big budget films that did poorly at the box office, as well as inexpensive, independent films that have done very well. Hence, presale revenue (guaranteed minimum payments by a film distributor to the film producer) is the only sure revenue the producer can bank on when budgeting costs of making the film. If the film does well, then the distributor and producer share in the profits.
• After Basinger dropped out of the film, one of Main Line’s partners loaned $1.7 million to the project, to be repaid out of domestic revenues.
• Often the producer will contract to share profits from presales, as well as incremental profits, with key actors. Basinger was to be paid a guaranteed $1 million to star in the film. In addition, she, her proposed co-star Ed Harris, and writer/director Jennifer Lynch were to be paid a total of 20.5% of the producer’s net profits. On the other hand, Sherilyn Fenn and her co-star, Julian Sands, each received only a $100,000 guaranteed salary.
• After Basinger dropped from the film project, the producer made some changes to scale back production costs by $1.9 million.
• Often a movie project has many investing partners. Main Line had a partnership with Philippe Caland, who was, essentially, to receive 50% of net profits (after participation payments to the actors and writer), up to a maximum of $2 million.
• After withdrawing from Boxing Helena, Basinger received $3 million from a separate producer to star in Final Analysis.
Do you agree with the numbers presented above by the plaintiff? Consider all the information provided above and adjust the incremental profit analysis if needed. Be sure to defend your decision to use or not use each piece of information provided.

Source: Adapted from T. L. Barton, W. G. Shenkir, and B. C. Marinas, “Main Line vs. Basinger: A Case in Relevant Costs and Incremental Analysis,” Issues in Accounting Education, Spring 1996, pp. 163–174.

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Foreign presales Domestic presales Total revenue Production costs Profit (loss) Minimum Damages, Plaintiff With Basinger $ 7.60 3.00 $10.60 (7.60) $ 3.00 Without Basinger $ 2.70 $ 2.70 Difference $ 4.90 3.00 $7.90 (2.80) (4.80) $(2.10) $ 5.10