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While “Star Wars” buffs are counting on “Episode III, Revenge of the Sith” to redeem the reputation of the franchise, Hollywood teeth-gnashers are hoping it kick-starts a slumping movie market. Box-office action is down 6 percent from the comparable period last year, and, according to Entertainment Weekly, attendance figures are down for the third straight year.
Only if your horizon is cluttered by short-term box-office hype.
In February, Edward Jay Epstein blew the lid off Hollywood’s dirty little open secret with his book “The Big Picture — The New Logic of Money and Power in Hollywood.” The open secret is this: A movie’s theatrical run is only the beginning of its life cycle; many more millions stand to be made in the DVD and television markets and through merchandising tie-ins.
“The permutations are endless,” Mr. Epstein writes.
Mr. Epstein calls it the “clearinghouse.” It’s not “built of bricks and mortar and doesn’t have a precise address,” he writes, but “it is conceptually an essential — and utterly real — part of today’s studio.”
The clearinghouse works like an interlocking system of offshore accounts. Even the industry’s biggest stars may not fully comprehend its back-scratching beauty.
Mr. Epstein offers the 2000 Nicolas Cage movie “Gone in 60 Seconds,” a product of the Disney-owned Touchstone Pictures, as an example. It cost the studio $206.5 million to make, factoring in production costs, advertising and overhead expenses. The movie took in $242 million worldwide, $139.8 million of which stayed in theater registers.
That leaves Touchstone about $100 million in the red, right?
How did Disney’s Michael Eisner get away with touting the movie as a “hit” in the company’s 2000 annual report? The answer is found in the clearinghouse, the highly lucrative after-market that pretty much shatters the industry mythology that attaches to the vaunted opening-weekend and weekly box-office tallies, which took off in the early 1980s.
The clearinghouse not only rescues the bottom line of movies that fare modestly at the box office, but it also keeps a significant chunk of money in studio coffers and out of the wallets of actors.
Follow closely: Buena Vista Home Entertainment International, also a Disney subsidiary, reported $198 million in sales and rentals of “Gone.” But only a fraction of that sum was credited to the movie, Mr. Epstein explains.
Buena Vista gave Walt Disney Pictures a $39.6 million royalty cut, a transaction that was treated as though the two companies were separate entities rather than corporate sisters. Distribution fees and other expenses claimed $20 million of that sum.
After various accounting tricks, Mr. Epstein writes, only $18.4 million of “Gone’s” home-entertainment take got credited to the movie itself — which, after deducting manufacturing expenses, left Disney with a $130 million profit on the home-entertainment release.
For Mr. Cage, who was entitled to 10 percent of the movie’s video gross, the royalty calculation meant he earned a little less than $4 million, as opposed to $19.8 million. That’s not chump change. “Without the royalty system,” a former studio executive told Mr. Epstein, “we would go broke.”
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