Hollywood movies are non-profitable

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Why aren’t hollywood movies profitable. There are award events and blockbuster sales showing massive production profits.

In: Economics

So the concept of Hollywood Accounting is sort of a myth. It stems from the corporate structure responsible for actually making a movie.

Each aspect of making a movie is handled by a different corporation that is formed specifically for that movie. So for example, the actual shooting of the movie, catering for the movie, marketing for the movie, and distribution for the movie are all being run by separate companies.

The only one of those companies that makes any money is the distribution company, where all of the profit is centered (since its the company that actually goes out and sells the movie). But if you’re an actor working on the movie you have no relationship with the distribution company. Instead, you’re employed by the company that shoots the movie. That company gets its costs paid by the distribution company, but otherwise has no source of income.

Because you’re employed by the company that shoots the movie that’s who you sign your employment contract with. If that contract just states that you get a percentage of the profit, then all you get is a percentage *of the shooting company’s profit*. Because that company has no real source of income, what you get is a percentage of that – IE, nothing.

The whole “Hollywood Accounting” thing comes from the fact that new actors usually don’t understand how this system works. They assume, as most normal people do, that the movie is being produced by a single company and that if they sign such a contract they will be entitled to the profit made by that single company only to find out that their assumptions about how the movie industry works were wrong.

Its also worth noting that the corporate structure used by movie studios to make movies isn’t unique to them. *Every* major project is structured like this, regardless of the industry involved. This is done to help spread liability for these huge projects out over a large number of entities – without this structure a small problem in one aspect of the project can bankrupt the entire thing. This structure is more visible in Hollywood because getting a flat percentage of the revenue from a project is common there but unheard of everywhere else.