Today let's look at some really creative accounting - Hollywood accounting.

Summary

On some movies actors are paid a percentage of net profits. Logically this makes sense since it provides an incentive for them to ensure the film is successful. The problem is that the studios would rather keep any profits for themselves and have the movie appear to be a total loss. The process of the studios removing any trace of profit from a successful film is called Hollywood accounting.

Example

Below is the earnings statement for Harry Potter and the Order of the Phoenix. Notice how a quite profitable movie manages to have a loss after all the expenses are deducted.

The Framework

To help accomplish this feat, each movie is incorporated as a separate subsidiary of the studio. This means each movie is a separate legal entity so if a movie turns a loss, that corporation can declare bankruptcy without affecting the studio.

Now that the movie is legally separate from the studio, the studio can now charge the movie large fees for 'services'. In this way the parent company can pull all the money out of the subsidiary so the subsidiary reports a loss.

Back to our Example

In the example above, these fees and charges for 'services' come up a few times. These are likely charges from the parent company with the express purpose of drawing down the income of the subsidiary. When the parent company creates its financial statements the consolidation process will hide both ends of this transaction, but it still punishes the subsidiary.

The other interesting anomaly I noticed was in the Investment and Other section. Now in my mind an advance is basically a loan, so it is weird that the repayment of the loan shows up in the income statement instead of the balance sheet. Ideally the loan should not be shown here, but you could also record the receipt of money from the loan as revenue and the repayment as an expense for the sake of consistency.

Lastly, admire the interest line for a moment. Not only is the parent company charging interest on money provided to the subsidiary, it is charging an absurd amount of it - around 18%. It looks like they put the cash advance on a credit card.

Conclusion

In comparison to Generally Accepted Accounting Principles (GAAP), this earnings statement could be perceived as misleading at best and downright erroneous at worst. This sort of accounting treatment has lead to numerous lawsuits against the studios which, unfortunately, have had mixed success in the courts. The problem is that the studios aren't obligated to report based on GAAP for revenue sharing arrangements. If the actors could manage to make this a requirement it could end this longstanding farce.

Last night Mark and I saw Crazy Heart as part of Theology in the Dark. Overall I was very impressed by the film so it deserves a bit more mention.

I won't go into a summary of the plot since you can find that anywhere, but what really impressed me was the smaller elements. I enjoyed that many events in the film were seemingly understated by Hollywood standards.

For example, at one point in the movie a car crash occurs. I liked the way it was portrayed since it wasn't needlessly violent, and like everything else in the film you could see it coming. The driver falls asleep at the wheel, you know its coming, the car goes off the road into a field then rolls a few times but stops upright. You could say this is symbolic of how the main character will regain his footing in life, but I appreciate the way the crash was shown. You don't need a lot of shock and surprise to get a point across.

After the film the group of us went to Boston Pizza to discuss what we saw, but at the end I found I didn't have much to say. There were so many conflicting emotions it was hard to come out with a strong opinion one way or the other. This may be because the film while not having a good ending, had the right ending.

As a somewhat bizarre but awesome project, Adam Bertocci has rewritten the movie The Big Lebowski as a Shakespearean play entitled The Two Gentlemen of Lebowski. The result is simply excellent.

[The bowling green. Enter THE KNAVE, WALTER and DONALD, to play at ninepins]

WALTER
In sooth, then, faithful friend, this was a rug of value? Thou wouldst call it not a rug among ordinary rugs, but a rug of purpose? A star in a firmament, in step with the fashion alike to the Whitsun morris-dance? A worthy rug, a rug of consequence, sir?

THE KNAVE
It was of consequence, I should think; verily, it tied the room together, gather’d its qualities as the sweet lovers’ spring grass doth the morning dew or the rough scythe the first of autumn harvests. It sat between the four sides of the room, making substance of a square, respecting each wall in equal harmony, in geometer’s cap; a great reckoning in a little room. Verily, it transform’d the room from the space between four walls presented, to the harbour of a man’s monarchy.

WALTER
Indeed, a rug of value; an estimable rug, an honour’d rug; O unhappy rug, that should live to cover such days!

DONALD
Of what dost thou speak, that tied the room together, Knave? Take pains, for I would well hear of that which tied the room together.

WALTER
Didst thou attend the Knave’s tragic history, Sir Donald?

DONALD
Nay, good Sir Walter, I was a-bowling.

WALTER
Thou attend’st not; and so thou hast no frame of reference. Thou art as a child, wandering and strutting amidst the groundlings as a play is in session, heeding not the poor players, their exits and their entrances, and, wanting to know the subject of the story, asking which is the lover and which the tyrant.

I sincerely hope this shows up at the fringe festival this year.

I know I am at least a few years late on this, but humour me. I need to vent.

On Friday night Emily and I were at her parents house and were wondering what movie to watch. We opened the cupboard and scanned the many titles before deciding to watch the entire Pirates of the Caribbean series sometime during the weekend.

Sunday was Pirates of the Caribbean day. We watched the first film in the early afternoon and the following two in the evening. I have to say that my opinions concerning the series really haven't changed. The problem with sequels is that movie producers are always left trying to out do themselves between movies.

The original movie is always fine and dandy. You have the story of a pirate crew who have stolen some cursed gold, a captain who wants his stolen ship back, and a casual love interest thrown in. Nothing outrageous right?

The second movie starts rather like the first, but has more mythological elements and is far, far harder to follow. Davy Jones comes up from the depths, the kraken is unleashed, and in the final fifteen seconds of the movie a character killed in the first film makes a reappearance. Not a good way to end a movie, but a good way to indicate that the franchise will be continuing.

The third movie is different altogether. People start traveling back and forth between the land of the dead, others learn how to walk through walls, and you can no longer follow the plot or any of the characters motives. The fact that Emily and I were enjoying some rum ourselves while watching this movie was probably the only thing that made it palatable.

By the end of watching all three movies it was kind of sad how far the series had run downhill in only three short movies.

What scares me right now is that I've read that there will be a forth Pirates of the Caribbean movie coming out sometime in 2011. I can't even imagine what they will introduce to make it bolder, edgier and more unpredictable than the last one. All I know is I'll probably have to drink more rum than Jack Sparrow does in order to get through it.

The gold standard for movie sequel degeneration is Smokey and the Bandit. This movie is about a couple of good old boys who steal a truck load of beer and try to smuggle it across state lines. One character drives the truck, the other drives a Trans Am and tries to distract the police. Good idea right? It is a sound premise and turns into ninety solid minutes of freeway chase scenes.

The sequel is just rather odd. Instead of stealing a truck load of beer, our two good old boys are transporting an elephant to the republican national convention. The film immediately loses all credibility. Stealing beer is proud and noble, but transporting an elephant? What gives?

Just when you thought it could get no worse, they released a third Smokey and the Bandit movie. This time, the actor playing the driver of the Trans Am decides his career is worth more than whatever they were offering to shoot this sequel sequel and does not return to this role. So instead the movie is simply the truck driver pretending to be the Trans Am driver while he attempts to antagonize one of the police officers from the other two movies. Ouch.

I know I am a bit late jumping on the band wagon with this one, but I would like to share with everyone the awesome-ness of Dr. Horrible's Sing-along Blog.  Imagine the best musical you have ever seen, then imagine that it wasn't about starving actors but an evil genius.  Not any evil genius now, but Dr. Horrible himself.  His story revolves around trying to get into the League of Evil, falling in love, and battling his nemesis Captain Hammer.

The plot is excellent, there are wonderful jokes and the muscial numbers... oh those musical numbers.  You too can sing along to such great songs as A Man's Gotta Do, My Freeze Ray, and Everyone's A Hero.  The best part of all is it is free for the benefit of all those on the Internet.  So go and enjoy it and sing along.

Postscript: If someone turns this into a fringe play for next year, I would be delighted.