NEW RECIPES COOKING FOR NET PROFIT PIE

When author Winston Groom, whose book was the basis for the film “Forrest Gump,” went public two weeks ago about the pittance he has so far received from Paramount Pictures, he focused a klieg light on the old discussion of how a film’s net participants rarely receive paychecks.

The row also had some industry dealmakers suggesting that the time has come for a new formula to compensate net profit participants – often a film’s writer or director, an important composer or even a well-known cinematographer.

Attorneys who routinely deal with the studios say that a simplified way of giving everyone on a film parity in profit participation would be to disburse negotiated percentages as soon as a film reaches “cash-break” – that is, when a studio recoups its costs for production, prints and advertising.

Another possible scenario would be to stop computing recurring charges such as studio overhead once a film recoups its actual costs. Participants would then be entitled to split a film’s revenue.

Under current studio accounting practices, net profit players have little likelihood of seeing green because net is typically defined as the studios’ share of revenue after the deduction of distribution fees and costs associated with production, prints, promotion and advertising. It also deducts big star salaries and their gross points.

“The biggest impediment to a writer (or other net participant) getting profits is the star getting gross,” says a former studio business affairs chief now repping scribes. “With one out of every five films, at best, becoming profitable, participants with net positions are almost guaranteed not to make any money.”

Dealmakers for several top scribes outside of the first-dollar-gross club say a level playing field could be created to allow for an equitable sharing of a film’s profits among its above-the-liners. But studios often resist.

“Under present studio formulas, writers will never get parity with directors and actors,” says attorney Eric Weissmann. “The only way that will happen is if a writer who is not big enough to command first dollar gross is given a share of a film’s gross after break-even. That way the studio is satisfied (as) it has made its money back, and the writer, who also got paid up front, can be confident there will be some money from the back end.”

But presently, those with a piece of the net often ask for much more money up front, knowing that their backend deal is unlikely to yield any money.

Some studio barristers counter that a net profit director, for example, would be more likely to see his paper points turn into cold hard cash if his advances were smaller.

“If everyone in a film reduced his front end take, a film would cost less, and net would be reached earlier,” offers a studio attorney. “But they say ‘we want more cash and we want a share of the profits.’ The two can’t always go together.”

Others dispute the notion that net participants are driving up the cost of a film through their advances. “Actors, writers and directors would be much more likely to take less cash up front if they had a reasonable expectation of getting profits,” says David Held, a former business affairs chief at Paramount.

But a film’s net is a fleeting thing, and is often only achieved momentarily during any given accounting period – that is, until the studio slaps on its distribution fee and charges for overhead and interest.

And since a film’s expenses are tallied on an accrual basis, a quarterly recap includes expenses incurred during the accounting period. But the studio may also tack on expenses that are likely to be accrued in the subsequent quarter.

That practice of rolling over the expenses artificially inflates a film’s downside because it accounts for cash taken in, while also including expenses not yet actually incurred. The process thereby keeps the film as far from a net position as possible.

The structuring still allows first-dollar gross players to get their money, but the payment of those fees – and the rolling over of the recurring charges – adds up. The result is that writers and others with net deals are pushed farther and farther down the ladder of remuneration.

Others suggest that a film’s actual bottom line would be more accurately reflected by not rolling over expenses and establishing a break-even point that, once reached, would result in a film’s net participants getting paid.

Groom’s attorney, Pierce O’Donnell, who was hired by the author hired to look into his deal with the studio, raised industry eyebrows when he declared that “Gump” – despite grossing $660 million worldwide – had yet to make a profit, according to an accounting statement that ran through December 1994.

Eric Roth, the “Gump” screenwriter, took a hefty deferment of his writer’s fee in exchange for a share of the back end – said to be around 5% of net. But unlike Groom, Roth has received an advance on his profits and fees for script revisions.

But neither Roth nor Groom has yet to be paid any share of the profits – neither has producer Steve Tisch – although Hanks and Zemeckis have already been handed $3 million paychecks and stand to rake in more than $30 million through their first-dollar gross deals. Tisch deferred his $250,000 producer’s fee for a share of the backend pie, and has since been given an advance by the studio.

Money coming

It is expected that once the foreign box office, homevideo, pay-TV and soundtrack revenues generated by “Forrest Gump” are tallied, the film will show a profit – and those holding net positions like Roth, Groom and Tisch will see some money.

But studio legal eagles counter that the industry return on investment in a film is around a nickel for every dollar spent, and interest charges and overhead recoupment help feed the studio machine.

“It is to our benefit to delay paying on profits for as long as possible,” says a studio bean counter. “We earn interest on the float and the money allows us to finance other ventures. Besides, we’re taking all the risk and we should be paid handsomely for it”

But Paramount s offer to Groom of an additional $250,000, on top of his $350,000 for the book rights and 3% of the net, signalled the studio’s belief the film will become profitable – or at least an acknowledgement that the industry’s accounting formula veers from commonly accepted definitions of reality.

More Film

  • 'Sicario: Day of the Soldado' to

    'Sicario: Day of the Soldado' to Be First U.S. Indie Title Released in Saudi Arabia

    When author Winston Groom, whose book was the basis for the film “Forrest Gump,” went public two weeks ago about the pittance he has so far received from Paramount Pictures, he focused a klieg light on the old discussion of how a film’s net participants rarely receive paychecks. The row also had some industry dealmakers […]

  • 'Incident in a Ghostland' Review

    Film Review: 'Incident in a Ghostland'

    When author Winston Groom, whose book was the basis for the film “Forrest Gump,” went public two weeks ago about the pittance he has so far received from Paramount Pictures, he focused a klieg light on the old discussion of how a film’s net participants rarely receive paychecks. The row also had some industry dealmakers […]

  • Gretchen Carlson

    Gretchen Carlson on How Her Roger Ailes Lawsuit Affected the Cosby Case

    When author Winston Groom, whose book was the basis for the film “Forrest Gump,” went public two weeks ago about the pittance he has so far received from Paramount Pictures, he focused a klieg light on the old discussion of how a film’s net participants rarely receive paychecks. The row also had some industry dealmakers […]

  • 'Hotel Transylvania 3: Summer Vacation' Tracks

    'Hotel Transylvania 3: Summer Vacation' on Track for $40 Million-Plus Opening

    When author Winston Groom, whose book was the basis for the film “Forrest Gump,” went public two weeks ago about the pittance he has so far received from Paramount Pictures, he focused a klieg light on the old discussion of how a film’s net participants rarely receive paychecks. The row also had some industry dealmakers […]

  • Actor Johnny Depp poses for photographers

    Johnny Depp: Rolling Stone Profile Latest Sign Actor Is PR Liability

    When author Winston Groom, whose book was the basis for the film “Forrest Gump,” went public two weeks ago about the pittance he has so far received from Paramount Pictures, he focused a klieg light on the old discussion of how a film’s net participants rarely receive paychecks. The row also had some industry dealmakers […]

  • Film review: Budapest Noir

    Film Review: 'Budapest Noir'

    When author Winston Groom, whose book was the basis for the film “Forrest Gump,” went public two weeks ago about the pittance he has so far received from Paramount Pictures, he focused a klieg light on the old discussion of how a film’s net participants rarely receive paychecks. The row also had some industry dealmakers […]

More From Our Brands

Access exclusive content