Last summer, Deadline released this balance-sheet ("participation statement") detailing the alleged financial state of the corporate entity struck to run the Warner Bros movie "Harry Potter and The Order of the Phoenix." The movie, which had grossed nearly $1B at the time, was nevertheless running $167M in the red. The losses are largely attributable to to prints and advertising/marketing -- and, as many commenters on the original post point out, a major recipient of that marketing budget would have been Warner's itself, in the guise of its other media divisions. Another culprit is high interest fees, though the film didn't have outside financing, so Deadline speculates that the loan note was also held by Warner's.
The original post holds this out as an example of why only a fool accepts "net-participation" compensation for work associated with a film, but I think this is also a great example of why all financial numbers released by the entertainment industry should be treated as fiction until proven otherwise. Especially piracy "loss" figures, alleged contributions to national GDP, and job creation numbers.
As one dealmaker tells me: "If this is the fair definition of net profits, why do we continue to pretend and go through this charade? Judging by this, no movie is ever, ever going to go to pay off on net participants. It's an illusion to make writers, and lower-level actors and filmmakers feel they have a stake in the game."
And yet Warner Bros isn't doing anything differently here than is done by every other studio. Clearly, nothing has changed since Art Buchwald successfully sued Paramount over the 1988 hit Coming to America when the subject of net participation was scrutinized, and a judge called studio accounting methods "unconscionable".
STUDIO SHAME! Even Harry Potter Pic Loses Money Because Of Warner Bros' Phony Baloney Net Profit Accounting
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