Hollywood Accounting Strikes Again: Investors In 29 Paramount Films That Earned $7 Billion Dollars Get No Return

Movie Industry

from the those-accountants-are-really-expensive dept

Ah, Hollywood copyright math. In the past, we’ve discussed a few instances of how massively profitable films use funny accounting tricks in order to avoid ever having to show an official profit, even as the studios themselves make out nicely. The key trick: the studios set up special subsidiaries just for each film, and then charge those subsidiaries huge sums of money for effectively doing very little. Thus, the studio gets all the money, but the actual “film” is shown as remaining in the red.

The latest example of this in action involves a group of investors who gave $375 million to Paramount Pictures expecting to see some return on blockbusters like Mission: Impossible III, Blades of Glory and the Transformers series. All in all, those $375 million dollars found their way into 29 movies, many of which were massively successful. In total, the collection of films brought in $7 billion dollars worldwide. And… Paramount didn’t pay a single dime out to those investors, until they were finally taken to court.

The financiers charged Paramount with understating gross receipts, delaying payments, overstating production and distribution costs and hindering audit rights to verify revenue and costs with the films that Melrose II had funded. The plaintiff also had a bone to pick with how revenue from Melrose II-funded films was being received through Paramount parent Viacom, not Paramount, and how money was flowing. For instance, Paramount allegedly paid sister company MTV as a third-party participant for Nacho Libre and Charlotte’s Web.

In reaction to the claims, Paramount initially described the lawsuit as “filled with hyperbole” and claimed that it “ignores the true facts.”

Later, Paramount characterized the investors as being impatient. “Based on the performance of the films in which it invested, Melrose II is expected to make a double-digit return on its investment,” the studio alleged.

Perhaps hoping to keep the mysteries of Hollywood accounting secret, Paramount has now worked out a “settlement” with the investors, just as hearings were about to begin. It seems likely that Paramount coughed up some money to keep the investors happy… and to keep from having to provide to the court information on how the money flowed, where all of us would have seen some more details of the infamous Hollywood accounting practices.

Filed Under: accounting, movies
Companies: paramount