1. Was ForrestGumpan 'accounting' hit in terms of net income, as computed by Paramount?
2. In their original contracts, actor Tom Hanks and director RobertZemeckiswere to receive $7 million and $5 million, respectively, for their work on ForrestGump. However, after the studio asked the producers for budget cuts, both Hanks andZemeckisagreed toforegotheir standard fee for a percentage of the film's gross box office receipts. Sources estimate that the new agreement guaranteed each of the two 8% of the studio's share of gross box office receipts from the film. Using the information available about the costs of making the film, did ForrestGumphave a positive contribution margin? Assume that all costs not specifically identified as variable are fixed.
3. If Hanks andZemeckishad demanded their original fees up front instead of taking a percentage of gross box office receipts, would ForrestGumphave made money in 1994?
4. Other individuals associated with the film signed contracts based on a percentage of 'net profits' rather than gross box office receipts, net profits being the film's profit after recouping of all the studio's expenses. For example, Winston Groom, who wrote the novel on which the movie was based, received $350,000 plus 3% of the film's net profits. Eric Roth, the screenwriter, signed a similar contract with a fixed fee plus 5% of the film's net profits. Based on your calculations above, how much did these two individuals receive from their share of the film's net profits?
5. How much in gross box office receipts will the studio have to receive from theaters before Groom and Roth receive any money under their net profit participation contract? (Again, assume that all costs not specifically identified as variable are fixed.)
6. Based on what you now know about contracts in the movie industry, which type of contract would a studio prefer actors, directors and others associated with a film to have? Why? Which type of contract would the actors, directors, and others prefer to have? Why?