Hollywood Accounting

It\’s famously, umm, how shall we put this, intricate.

The family of JRR Tolkien is suing the studio behind the Lord of the Rings trilogy for £75 million claiming they have not received "even one penny" from the films.

Bonnie Eskenazi, the lawyer for the Tolkien Trust, said: "I cannot imagine how on earth New Line will argue to a jury that these films could gross literally billions of dollars, and yet the creator\’s heirs, who are entitled to a share of gross receipts, don\’t get a penny."

JRR Tolkien negotiated a lucrative long-term deal when he finally sold the film rights to the works in 1969. He received about £100,000 and a percentage of the royalties.

The trust, which manages the estate, is seeking 7.5 per cent of gross revenues after deduction of certain costs.

I\’m sure the studios have now moved on from mere prestigitation into the realms of hyper-accounting, but the classic method was to state that "certain costs" included "overheads". But the allocation of overheads was something left to the studio accountants. Anything and everythng, the kitchen sink, the coke for starlets at producer parties, the development deals with this star and that….all would be loaded onto the accounts of a film in danger of showing a profit. Something truly successful might pay 50% of all running costs of the studio for the year. Thus, regrettably, it would turn a profit.

3 thoughts on “Hollywood Accounting”

  1. Amazing, isn’t it? It’s nice to know that there really are big bad companies out there. I hope the bosses do suitably evil things in their spare time, such as wearing white suits and laughing maniacally to themselves.

  2. But somewhere along the line, the studio has to be making a profit, and somewhere along the line that fact is going to have to be reported.

    I smell either a class action (all royalty owners club together to ask for royalties, so that the transfer pricing argument can’t be used collectively) or a riot. Probably both.

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