Movie profit sharing, defining terms. Brad Fittler, first-time author of The Sporting Life, has just had a meeting with Bill Harrigan, a senior executive of Golden Ventures (GV).

GV is a major movie studio with many successes. The Sporting Life is a best-selling novel about the personal and professional career of Allan Langer, a recently retired football superstar. Harrigan bubbled with excitement during the meeting. He said the book was the “best thing he had seen in many years” and would make “Titanic look like a minor movie.” Fittler felt great about a luminary such as Harrigan being so full of praise for a film based on a book that many publishers initially rejected as “not meeting their commercial criteria.”

After the meeting, Fittler called Penny Carr, a friend for many years. Carr showed Fittler some extracts from an exposé on “Accounting, Hollywood Style”—see statement below.

Fittler was dismayed by the Cumulative Distribution Statement. He thought Bill Goldberg Superstar was a box-office success and yet it still was more than $74 million “in the red.”

a. The studio’s revenues from the film to date. All North American theatre screen and television revenues are included. Only 50% of non—North American revenues are included.
Only 20% of the gross is included for home DVD sales. The film’s video distributor, Golden Ventures Home Video (100% owned by GV), kept 80% because it was treated as a separate company. Revenues from nontheatre, nonvideo, and nontelevision sources are not included.

b. Distribution fees. Covers overhead costs of running a studio and is a flat 35% of revenues.

c. Distribution expenses. The actual costs of putting the movie in theatres, including advertising, printing copies of the film, and transportation.

d. Gross participation fees of directors, screen stars. The major “talent” on the movie receive 20% of the gross receipts for the first $240 million and 25% thereafter.

e. Negative cost is the cost of producing everything that is seen onscreen, from film and sets to up-front fees paid to cast and crew.

f. Interest on negative cost. The studio views the cost of financing a film as a loan and charges 125% of the prime rate for any negative balance in line 9 as long as the movie “remains in the red.”
REQUIRED You are asked to give advice to Brad Fittler. You should

a. Identify the weaknesses in the Golden Ventures Cumulative Distribution Statement for an author whose payment is 5% of net profits.

b. Propose ways to reduce (or even eliminate) the weaknesses you identify in

(a) for a contract for Fittler.LO1

Transcribed Image Text:

Golden Venture Report on Bill Goldberg Superstar Cumulative Distribution Statement (in $ thousands) From July 1, 2008 to March 31, 2009 1. Gross receipts (a) 2. Less distribution fees (b) 3. Gross after distribution fees 5. Balance 6. Less gross participation fees of directors, screen 4. Less distribution expenses (c) stars, and so on (d) 7. Balance 8. Less negative cost (e) 9. Balance 10. Less interest on negative cost (f) 11. Net profit $192,354 67,324 125,030 66,076 58,954 38,471 20,483 (82,104) (61,621) 12,943 $ (74,564)