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Hollywood Studios Rewriting Pay System for Their Talent

A switch from handing over of a movie's initial revenue aims to stem production losses.

January 13, 2006|John Horn | Times Staff Writer

When it comes to big romantic comedies, Meyers enjoys one of the best track records in town, putting her in the elite club of first-dollar gross directors. Her last three films -- "Something's Gotta Give," "What Women Want" and "The Parent Trap" -- were hits, grossing a combined $373 million in U.S. theaters.

But when Sony Pictures looked at Meyers' latest film's budget and its star-laden cast (Cameron Diaz, Jack Black, Jude Law and Kate Winslet), the studio worried that if it paid everyone his or her going rate, "Holiday" would have to have to be a blockbuster -- grossing at least $200 million -- before Sony would see a dime. (Studios typically split movie ticket revenue with theater chains.)

So the studio, the director and the actors all settled on the new formula. Under the film's reworked contract, Sony will not pay out any gross profit until the studio has recouped its production, marketing and distribution costs, which are estimated to be more than $100 million.

"If the studio wins, the talent wins," said Bob Osher, chief operating officer of Sony's Columbia Pictures.

Moviemaking deals that include profit sharing have a rich and storied history, dating to a pact negotiated by legendary talent agent Lew Wasserman for Jimmy Stewart that guaranteed the actor a percentage of the returns of the 1950 movies "Harvey" and "Winchester '73."

In the ensuing years, various actors were given a share in a movie's revenue. But as the studios became more creative with their accounting, people sharing in a film's "net profit" often discovered that even mammoth blockbusters had somehow become money losers on a studio's books, as was the case with "Batman" and "Forrest Gump."

During the rise to power of Michael Ovitz and Creative Artist Agency in the 1980s, a larger number of performers and filmmakers were contractually entitled to first-dollar gross, meaning the studios had to share every dollar that passed through the studio tills.

Today, the spreadsheets of studio executives contain as many iterations of the new compensation formula as there are brands of bottled water. Some of the deals allow the studios to charge for inflated overhead, interest and distribution fees (as opposed to their actual costs for such services), although the best deals for talent do not. Some contracts mandate that a studio count all of a movie's video revenue toward its recoupment, rather than the usual 20% that is returned to the bottom line.

Rich Klubeck, an agent at United Talent Agency, said the new deal structures might help studios manage costs and make more daring movies.

"The bargain is the studio takes a lot less risk," Klubeck said. "And everyone who makes the movie enjoys a bigger [profit participation] if it succeeds."

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Recasting the bottom line

Studios increasingly are steering top-drawer actors and filmmakers away from Hollywood's established compensation system, known as first-dollar gross. The new pay formula, called cash-break-even, allows studios to recoup their costs before sharing revenue with a film's creative talent. Here's an illustration of how the two plans work.

First-dollar gross method

*--* Gross revenue to studio: $250.0 million Profit shared with filmmakers and cast at 25% of that revenue: -$62.5 million Studio gross revenue: +$187.50 million Total cost of making the movie: -$190.0 million Studio bottom line: -$2.5 million

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Cash break-even method

*--* Gross revenue to studio: $250.0 million Studio payback for cost of making the movie: -$190.0 million Net revenue for filmmakers, cast and studio: +$60.0 million Payments to filmmakers and cast at 50% of net revenue: -$30.0 million Studio bottom line: +$30.0 million

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Source: Times research

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