Creative accounting practices in Hollywood can make it challenging to determine definitively which films have lost money, especially when considering reported budgets and box office earnings. Studios often employ complex financial structures, profit participation agreements, and distribution deals that impact how revenues and expenses are calculated. Additionally, marketing and distribution costs can significantly affect a film's overall financial performance. While specific details on losses can be obscured by studio reporting practices, here are some films that have been discussed in the context of potentially not meeting financial expectations based on reported budgets and box office earnings:
Disney Sued by Film Financier TSG Over “Chilling Example” of Hollywood Accounting
Article by Ashley Cullins, for The Hollywood Reporter
"Avatar: The Way of Water"
In a lawsuit file in August 2023, TSG says 20th Century Studios and Disney "have tried to use nearly every trick in the Hollywood Accounting playbook" to short them hundreds of millions of dollars in connection with its investments in films including 'Avatar: The Way of Water.' Disney being accused of hindering a deal between 20th Century Studios and TSG Entertainment Finance in an effort to boost Disney+ and Hulu subscriptions, stock prices and executive compensation. In a new lawsuit, TSG Entertainment Finance says an independent audit of three films including best picture winner The Shape of Water revealed it’s owed more than $40 million — after all is said and done, the company suspects the total will be in the hundreds of millions — and the cash shortfall has caused it to take a worse position in its investment in Avatar: The Way of Water. TSG on Tuesday sued 20th Century Studios for breach of contract and Disney for inducing that breach. The financier says it has invested more than $3.3 billion into well over 100 films, which also include Bohemian Rhapsody, Deadpool, Dawn of the Planet of the Apes, The Martian, The Grand Budapest Hotel and The Banshees of Inisherin. In a blistering intro, TSG’s attorney John Berlinski opened with discussing “Hollywood Accounting” and arguing that it’s now a common practice employed by studios to “cheat” profit participants out of money. “Disney (and the executives running it) had and continue to have every incentive to do anything and everything they can, including manipulating distribution of the Qualifying Pictures and preventing TSG from liquidating its interests in certain tranches of Qualifying Pictures, to attempt to boost Disney’s share price at the expense of TSG and other profit participants,” writes Berlinski in the complaint. Berlinski — who led Scarlett Johansson’s fight against Disney over her payment on Black Widow after it was given a simultaneous release on Disney+ and the stars of Bones in their profit participation dispute with Fox — described this as a “chilling example” of the practice. TSG says 20th and Disney “have tried to use nearly every trick in the Hollywood Accounting playbook” to short them hundreds of millions of dollars. Their initial revenue participation agreement dates back to Dec. 31, 2012. Under the deal, which has been amended nine times since then according to the complaint, TSG would co-finance the production and marketing costs in exchange for a share of the defined gross receipts. Over the years, the money TSG received from its investments “decreased dramatically” and the company launched an independent audit to investigate the financial records. Based on what the auditors found in their sample, they estimate that TSG’s defined gross receipts were reduced by at least $54.5 million from Electronic Sell-Through distribution and it was improperly charged $35 million in costs related to Movies Anywhere. According to the complaint, those auditors sampled three films and found 20th failed to credit TSG with revenue, charged tens of millions in distribution fees not permitted under their deal, deducted expenses not related to the pictures in their slate and “uncovered rampant ‘self-dealing,’ the practice by which a studio enters into ‘sweetheart’ deals with its licensee affiliates to artificially minimize the profit payments to stakeholders like TSG.” With The Way of Water, for example, TSG alleges that 20th ignored a standing agreement with FX Networks that calculated license fees tied to domestic box office performance and “did a secret side deal for a fraction of what the parties had previously agreed was fair value.” TSG also says it’s been damaged by changes in distribution windows. According to the complaint, 20th had agreed to license films to HBO for the “Pay 1 window” from 2012-22 for a reported $200 million per year. That changed in 2019 when Disney acquired 21st Century Fox. TSG believes Disney made 20th renegotiate its deal with HBO to boost Disney+ and Hulu and “give up a significant portion of its guaranteed HBO license fees” in order to do so — and that it shortened its home video window to get things up on its streamers faster. “On information and belief, these deviations from the traditional windowing of Fox’s films — in spite of Fox’s express and implied obligations to TSG — were a direct result of Disney’s interference with the RPA in pursuit of its ultimate goal: to prop up its wholly- or majority-owned streaming platforms and the share price of its stock using content from other divisions of the company,” writes Berlinski in the complaint. “Moreover, as Disney’s own CEO, Bob Iger, has admitted, his company pursued this strategy recklessly and with little forethought. For example, during Disney’s August 9, 2023 earnings call—in which Mr. Iger announced Disney+’s second subscription price increase in a year—Mr. Iger admitted with respect to Disney+, ‘We grew this business really fast, really before we even understood what our pricing strategy should be or could be.'” (The complaint uses shorthand for 20th throughout by naming it as “Fox,” although Disney has since retired that moniker for 20th Century Studios.). Because of all of this, TSG alleges, by 2022 it didn’t have the cash it needed to fund future pictures. So, it started exploring the “Qualified Picture Slate Repurchase Procedure” that was included in their agreement, which allowed TSG to request a repurchase of a group of five consecutively released films. If TSG and 20th couldn’t come to a deal on a repurchase price, TSG could then market and sell the tranche of pictures to a third party to free up cash to fund future films. From June 2022 through June 2023, TSG inquired about 13 different tranches of films, according to the complaint, but says 20th wasn’t interested. Citing an email from Disney CFO Paul Shurgot as proof, TSG argues that Disney is interfering in its deal with 20th. Shurgot wrote: “While we don’t agree with your characterization of the agreement, we are open to finding a path forward to resolve this which makes economic sense. However, as discussed, we are not open to providing an offer on selected non-consecutive tranches that are among the most profitable tranches released to date, as doing so is counter to the agreement and would undercut our ability to recoup the TSG Additional Contributions.” With no cash on hand, TSG says it had to take an advance from 20th to meet its funding obligations on films including Avatar: The Way of Water, which reduces its share of defined gross receipts and triggers a provision that entitles 20th to some of its profits. “Perhaps most egregiously, after TSG informed Fox of its intent to file this action, Fox and Disney capitalized on Fox’s own breaches of the RPA in a bad-faith attempt to whitewash their misconduct,” writes Berlinski. “On August 11, 2023, Fox sent TSG an e-mail taking the position that, because it had previously issued the Fox Picture Advance, it was entitled to invoke a provision of the RPA that would purportedly allow it to repurchase all released Qualifying Pictures and extinguish TSG’s hundreds of millions of dollars of legal claims.”
"The Adventures of Pluto Nash" (2002)
o Reported Budget: Approximately $100 million
o Box Office Earnings: Approximately $7.1 million worldwide
o Losses: Despite its substantial budget, "The Adventures of Pluto Nash" was a notable box office flop, earning far less than its production costs. The film's poor performance led to significant financial losses for the studio.
"47 Ronin" (2013)
o Reported Budget: Estimated to be over $175 million
o Box Office Earnings: Approximately $151.8 million worldwide
o Losses: Despite earning a sizable amount at the box office, "47 Ronin" faced challenges in recouping its high production and marketing costs. The film's underperformance relative to its budget contributed to financial losses for the studio.
"Cutthroat Island" (1995)
o Reported Budget: Estimated to be around $115 million
o Box Office Earnings: Approximately $10 million worldwide
o Losses: "Cutthroat Island" is often cited as one of the biggest box office failures in history. Despite its significant budget and marketing efforts, the film's poor performance led to substantial financial losses and contributed to the bankruptcy of its production company, Carolco Pictures.
"Mars Needs Moms" (2011)
o Reported Budget: Estimated to be over $150 million
o Box Office Earnings: Approximately $39 million worldwide
o Losses: Despite its investment in cutting-edge motion-capture technology and marketing, "Mars Needs Moms" struggled at the box office and resulted in significant financial losses for Disney. The film's poor performance was attributed to various factors, including audience reception and marketing challenges.
"Gemini Man" (2019)
- Box Office Earnings: Approximately $173 million worldwide
- Reported Budget: Over $138 million
- Despite its high-profile cast and innovative visual effects, "Gemini Man" struggled to break even due to its substantial production budget and marketing expenses. The film's underperformance at the box office led to financial losses for Paramount Pictures.
"King Arthur: Legend of the Sword" (2017)
- Box Office Earnings: Approximately $148 million worldwide
- Reported Budget: Over $175 million
- Despite its ambitious scale and marketing efforts, "King Arthur: Legend of the Sword" failed to recoup its high production costs at the box office. The film's disappointing performance contributed to financial losses for Warner Bros.
"The Mummy" (2017)
- Box Office Earnings: Approximately $410 million worldwide
- Reported Budget: Over $195 million
- Despite its strong international box office performance, "The Mummy" faced challenges in achieving profitability due to its high production budget and extensive marketing costs. The film's mixed critical reception and underperformance in the domestic market contributed to financial losses for Universal Pictures.
"Cats" (2019)
- Box Office Earnings: Approximately $75 million worldwide
- Reported Budget: Over $95 million
- Despite its star-studded cast and beloved source material, "Cats" struggled both critically and commercially, resulting in significant financial losses for Universal Pictures. The film's extensive use of CGI and mixed reception led to challenges in attracting audiences.
"Fantastic Four" (2015)
- Box Office Earnings: Approximately $168 million worldwide
- Reported Budget: Over $155 million
- Despite its recognizable superhero property, "Fantastic Four" faced substantial financial losses due to its poor critical reception and underwhelming box office performance. The film's troubled production and negative word-of-mouth contributed to its financial challenges for 20th Century Fox.
"Dolittle" (2020)
- Box Office Earnings: Approximately $245 million worldwide
- Reported Budget: Estimated to be over $175 million
- Reported Losses: Despite earning a decent amount at the box office, "Dolittle" faced challenges in recouping its production and marketing costs. The film's mixed critical reception and higher-than-expected budget contributed to its financial losses.
"Charlie's Angels" (2019)
- Box Office Earnings: Approximately $73 million worldwide
- Reported Budget: Estimated to be around $55 million
- Reported Losses: Despite its relatively lower production budget compared to other big-budget films, "Charlie's Angels" struggled to attract audiences and recoup its costs. The film's underwhelming box office performance led to financial losses for the studio.
"Robin Hood" (2018)
- Box Office Earnings: Approximately $86 million worldwide
- Reported Budget: Estimated to be over $100 million
- Reported Losses: Despite its action-packed premise, "Robin Hood" failed to resonate with audiences and faced challenges in covering its production and marketing expenses. The film's financial losses underscored the risks associated with rebooting classic stories for modern audiences.
"Solo: A Star Wars Story" (2018)
- Reported Budget: Estimated to be over $275 million
- Box Office Earnings: Approximately $393 million worldwide
- Studio Claim: Despite its respectable box office earnings, "Solo: A Star Wars Story" reportedly did not meet Disney's financial expectations due to its high production budget and extensive marketing costs. The studio cited the film's underperformance relative to other Star Wars films as a factor in reporting lower profits.
"Justice League" (2017)
- Reported Budget: Estimated to be over $300 million
- Box Office Earnings: Approximately $657 million worldwide
- Studio Claim: Warner Bros. reportedly faced challenges with "Justice League" in achieving profitability despite its substantial box office earnings. The film's high production budget, extensive reshoots, and marketing costs contributed to the studio reporting lower-than-expected financial results.
"Terminator: Dark Fate" (2019)
- Reported Budget: Estimated to be over $185 million
- Box Office Earnings: Approximately $261 million worldwide
- Studio Claim: Despite earning over $200 million at the global box office, "Terminator: Dark Fate" reportedly did not meet expectations in terms of profitability. The film's high production budget and marketing costs contributed to the studio's financial challenges.
"John Carter" (2012)
- Reported Budget: Over $250 million
- Box Office Earnings: Approximately $284 million worldwide
- Despite its relatively high box office earnings, "John Carter" faced challenges in recouping its production and marketing costs. The film's underperformance led to significant financial losses for Disney, with some reports suggesting losses exceeding $200 million.
It's important to note that while these films are often discussed in the context of financial losses, the intricacies of Hollywood accounting can make it difficult to definitively quantify losses based solely on reported budgets and box office earnings. Additionally, studios may offset losses through ancillary revenue streams such as home video sales, streaming deals, and merchandise. As a result, reported losses for specific films may not always align with conventional box office metrics.
Hollywood studios have been known to use various methods to obscure their profits in film revenue, often to minimize payments to talent, profit participants, and other stakeholders. These practices, while legal within the framework of entertainment industry accounting, can be perceived as deceptive or unfair by those expecting a share of a film's profits. Here are some of the most devious methods used by Hollywood studios to obscure their profits:
- Creative Accounting: Studios can employ complex accounting techniques to allocate costs and revenues across multiple projects or divisions, making it difficult to attribute specific earnings or expenses to individual films. This can result in reduced reported profits for successful films.
- High Distribution and Marketing Costs: Studios may allocate disproportionately high distribution and marketing expenses to a film, even if those costs exceed the actual production budget. This reduces the film's reported profitability, particularly in cases where a studio has a profit-sharing agreement with talent based on net profits.
- Residuals and Participation Deductions: Studios deduct various fees, expenses, and residuals from a film's revenue before calculating net profits. This can include distribution fees, advertising costs, and residuals paid to talent, which reduce the amount of profits available for profit participants.
- Vertical Integration and Cross-Collateralization: Studios with diversified operations (e.g., production, distribution, and exhibition) may engage in cross-collateralization, where profits and losses from different projects or divisions are offset against each other. This can obscure the true financial performance of individual films.
- Net Profit Definition: Studios often define "net profits" in profit participation agreements in ways that favor the studio, including deducting various overhead costs and expenses before calculating profits. This can significantly reduce the amount of money owed to profit participants.
- Complex Profit Participation Agreements: Studios negotiate intricate profit participation agreements with talent and stakeholders, incorporating caps, floors, and other provisions that limit the amount owed to profit participants, particularly in cases of high-grossing films.
- Foreign Exchange Rates and Revenue Reporting: Studios may manipulate foreign exchange rates and revenue reporting for international box office earnings, complicating the calculation of profits owed to talent and stakeholders.
- Hollywood Accounting: The term "Hollywood accounting" refers to the industry's practice of reporting a film as unprofitable despite significant box office earnings, often through the use of the aforementioned methods. This practice can shield studios from paying substantial profit shares to talent and stakeholders.
These methods, while legal and common within the entertainment industry, have been criticized for their lack of transparency and fairness. Many profit participants, including actors, directors, writers, and producers, have spoken out against these practices, leading to high-profile legal disputes and calls for reform in profit-sharing agreements.