Forrest Gump

Topics: Film, Forrest Gump, Revenue Pages: 5 (1081 words) Published: November 4, 2010
Forrest Gump:
Management Accounting at the Movies

Hollywood accounting can be every bit as creative as a good movie script. At least, that is what some lawyers and journalists seem to be telling us. According to news reports, the hit movie Forrest Gump, which won “Best Picture of 1994” honors at the Academy Awards, claimed a worldwide theatrical gross of $661 million through May of 1995. That amount excludes videocassette and soundtrack revenues, and it doesn’t include licensing fees of Forrest Gump products such as wristwatches, ping-pong paddles and shrimp cookbooks. Yet, according to Paramount Studios, the film project lost $56 million dollars on a box office gross of $382 million through December, 1994 (see Exhibit 1).

Forrest Gump is the latest of a string of hit movies to report a loss. Other losers include Batman, Rain Man, Dick Tracy, Ghostbusters, Alien, On Golden Pond, Fatal Attraction, and Coming to America. Each of these motion pictures grossed well over $100 million, but in each case, costs were reportedly greater than revenues.

The production costs for a film, part of what the studios refer to as “negative costs”, represents only part of the cost of the project. In addition, studios add promotion and distribution costs, advertising overhead, and distribution fees to the total negative costs to get the total cost of the project. A significant portion of the negative costs is the payments made to “gross participants” on the basis of a percentage of gross revenues. This leads to what Hollywood accountants and lawyers refer to as the “rolling break.” Two of the costs (the amount retained by the theaters and the gross profit participation) may be discontinuous for some motion pictures and change with changes in the amount of the box office gross or with time. Alex Ben Block, executive editor of The Hollywood Reporter explains:

“A rolling break means that the break-even point – that point at which a movie has gone from a loss to a profit – changes after the release of the film, depending on the payments made to the star talent involved. A picture that has a big profit participation by a star actor, director or producer is never considered by studio accounting to break even.”

How can the studios be losing so much money on their most successful projects? Sometimes what is referred to as a loss isn’t really a loss at all. Typically, profits are calculated based on contracts between the studios and the film’s “net profit participants.” In a typical net profit participation contract, “profit” is calculated after deducting a distribution fee paid directly to the studio, studio overhead (some of which is allocated to the film as a percentage of the gross). One studio executive, Rob Friedman of Warner Bros., explains the accounting this way:

“What you are looking at is not the profit and loss statement of the overall accounting of the motion picture. What you’ve got there is a statement reflecting a contractual agreement of contingent compensation for a particular individual. So whether it’s Batman or any other motion picture, an accounting statement always reflects an individual arrangement based upon certain agreed-upon conditions. It’s the studio’s obligation to fairly and accurately comply with the contractual arrangement agreed upon by both the studio and that individual.”

In recent years, reported losses on hit motion pictures have resulted in lawsuits being filed by the net profit participants. In 1988 Art Buchwald and Alain Bernheim were awarded $900,000 by the Los Angeles Superior Court to cover their 19% participation in the net profits of Coming to America, even though the studio claimed the film never made money. Reported losses of more than $20 million on the movie Batman prompted a series of lawsuits from the net profit participants.

Winston Groom, the author of Forrest Gump, retained an attorney to get a share of the profits from the film, even though Paramount is...
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Essay on Forrest Gump
  • Forrest Gump Essay
  • Forrest Gump Essay
  • Forrest Gump Essay
  • Forrest Gump Essay
  • The Morality of Forrest Gump Essay
  • Essay on Forrest Gump Analysis
  • Forrest Gump Essay

Become a StudyMode Member

Sign Up - It's Free