http://www.hollywoodreporter.com/news/hollywood-accounting-statistics-never-reveal-921391

Galloway on Film: Lies, Damned Lies and (Hollywood) Statistics

6:00 AM PDT 8/22/2016 by Stephen Galloway


The numbers that really matter are kept secret — the ones made public distort the full truth.

The numbers never lie.

That’s one of Hollywood’s more egregious myths, along with “the camera never lies” and “you’ll get a cut of the profits,” both liable to draw howls of disapproval from anyone in the know.

But numbers are different, aren’t they? There’s something safe and solid about a number. It’s either right or wrong; it speaks to the notion of absolute truth; and it cannot be manipulated, unlike so much else in an industry that has turned manipulation into an art form. A number is sacrosanct, it would seem.

But not in Hollywood.

Hollywood numbers have their own special logic. They twist and turn, bend and melt, and sometimes vanish altogether into an ether of obscurity. They’re the quarks of the entertainment industry. Reporters like myself spend hours each week trying to get the real ones, and then often fail miserably to decipher them.

When you hear that a star has 20 percent of the adjusted gross, what does “adjusted gross” mean? Your guess is as good as mine. But the definition of “adjusted” can affect income by millions of dollars.

The indies exaggerate the cost of their movies; the studios lie in the other direction. Both are masters at bundling groups of films when they sell them abroad so that one movie’s loss is factored against another’s success.

All this is called “Hollywood accounting,” and it’s barely more transparent now than it was when the industry was founded.

Art Buchwald could have told you this a long time ago.

In the early 1980s, Buchwald, a humorist and Pulitzer Prize-winning columnist, wrote a two-and-a-half-page movie treatment about an African prince who travels to the U.S. He took the project, It’s a Crude, Crude World, to producer Alain Bernheim, who in turn sold it to Jeffrey Katzenberg, then an executive with Paramount.

Katzenberg spent several hundred thousand dollars developing it into a screenplay that he titled King for a Day. That’s just about how long Buchwald got the royal treatment before Katzenberg left for Disney, when a new regime at Paramount took over and King was put into turnaround. It was subsequently bought by Warner Bros.

Soon after, Paramount began to develop its own, similarly themed film, with Eddie Murphy attached to star. When Coming to America was released in 1988, five years after Buchwald sold his treatment, his name was nowhere near it. Instead, a “story by” credit went to Murphy, who received the grand sum of $400,000 for his idea — one of those murky numbers that is never mentioned when you hear what a star is getting paid.

Plagiarism or not, Buchwald sued and won.

But that’s not what made his case special.

When a judge decided he was owed a share of the net profits, a minor spat became a major brawl, “an historic legal battle over the way the motion picture studios keep their books and diddle their talent,” as the plaintiffs’ attorney, Pierce O’Donnell, put it in a book about the lawsuit.

Paramount claimed the picture was still in the red (even though it had earned $289 million worldwide) and argued so much was spent on marketing and distribution that there was no net profit — a defense the judge deemed “unconscionable.”

Buchwald and Bernheim were awarded $900,000 in a 1992 settlement. Paramount had egg on its face. And, for the first time, the world had proof that Hollywood numbers lie — or at least, that Hollywood people use number to lie.

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Few lies are more effective than the ones that use a small truth to hide a big falsehood.

I couldn’t help but think of that this weekend as a host of local and national news reports touted the latest box office standings. What was once kept secret has now become an important marketing tool, and studios scramble over each other to ensure that their picture comes in No. 1.

But box office is just the tip of a numeric iceberg, and the numbers that really matter are drowning under the waves.

Once again, Suicide Squad was No. 1, having grossed $262 million domestically and $572.7 million worldwide. While Warners insists the picture will be profitable, there’s plenty of debate as to what constitutes success. How much did the movie cost? What percentage of gross will go to its stars and director? How much was spent promoting it? And how much more will Warners spend to keep the picture in theaters, pushing the break-even point into the distance — a concept known in the business as a “rolling break,” as the profit margin rolls further and further away.

Suicide may have been No. 1, but its overall ranking is almost irrelevant compared to whether it made money.

And shouldn’t those news reports be touting another picture, instead? That’s Sausage Party, which may have come in No. 2 but which only cost a reported $19 million — a fraction of Suicide’s budget.

As any studio chief can tell you, it’s profitability that counts.

But it’s almost impossible to assess. Few studios ever give an accurate account of the negative cost of their films — that is, how much they cost to make, before prints and advertising are added to the mix. On the rare occasions they do, they stay mum about their marketing outlay.

Their lips are also tightly sealed when it comes to non-theatrical revenue — income that eclipses earnings from theaters, including home entertainment, network and cable TV, along with a host of other ancillary markets.

Without these numbers, nobody can know whether a movie is in the black or how profitable it truly is.

Box office numbers may not be lies, but they obfuscate and distort the truth. As Mark Twain famously observed (or Disraeli, depending on your preference), there’s lies, damned lies and statistics. And few statistics are quite as untrustworthy as Hollywood’s.

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Take movie piracy as an example.

In November 2011, a White House aide, Victoria Espinel (then commonly referred to as the “intellectual property czar, though her title was the U.S. intellectual property enforcement coordinator for the Office of Management and Budget), told indie filmmakers gathered at the American Film Market that IP theft cost the U.S. some $58 million a year.

Many who were present for Espinel’s talk might be forgiven for thinking Espinel was talking about movie piracy, when she was actually referring to IP as a whole, of which piracy is only a small part. Even then, her number was more myth than reality.

Why? Consider the source.

That $58 billion statistic comes from a 2007 report written by Stephen Siwek of the Institute for Policy Innovation. In case you’ve never heard of him or the Institute, it’s a think tank backed by Dick Armey. Who’s Armey? The former right-wing Congressman who was a longtime liberal bogeyman and big-business advocate— hardly the best source of objectivity.

Siwek also estimated that movie piracy cost the U.S economy some $20.5 billion a year. Just to put that in context, it’s almost half the global box office revenue for 2015, which was slightly more than $38 billion.

The Motion Picture Association of America’s own number seems more reasonable, at least at first glance. Drawing on a L.E.K Consulting study, in 2004 the MPAA reported that piracy cost the majors $6.1 billion a year.

But the MPAA’s number boasts its own quota of red flags. There’s no indication of the specific questions that were asked to the 20,000 consumers in 22 countries who were interviewed for the L.E.K. study.

Nor does its number fairly attempt to estimate what a consumer might have paid for something he or she downloaded illegally. The MPAA study assumes that a poor person in a Third World country would pay the $10-plus that a DVD costs if he or she were unable to access the movie. I’ve seen pirated DVDs hawked in Third World countries. Would the locals buy them at full cost? Not a chance.

Why the gap between the MPAA’s $6.1 billion and Siwek’s $20.5 billion? Because the latter also factors in estimated losses to the economy from revenue that fails to circulate through the country.

“ says that a dollar less in film spending actually has a larger impact since it impacts other parts of the economy,” Koleman Strumpf, an economist at the University of Kansas School of Business, told The Wall Street Journal. “But if file-sharing leads to less spending on films, consumers have more money to spend which will completely offset these effects. There is no multiplier effect at all.”

There’s no doubt piracy significantly hurts the industry. But there’s yet to be any definitive assessment of the actual loss. Until there is, the $6.1 billion and $20.5 billion and $58 billion numbers are all just estimates.

They’re not quite lies, or even damned lies. But they’re statistics of the most dubious kind

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