Are these the last days of Hollywood accounting? A pair of legal decisions are casting a dark shadow of doubt over the time-dishonored Hollywood tradition of making sure that every blockbuster hit ends up losing money for accounting purposes.
First, Walt Disney
The seeds of change have been sown.
So-called Hollywood accounting is a danse macabre designed to conserve profits for the studios instead of sharing royalties with contributors like writers, directors, or actors. Contracts written to distribute net profits rather than gross takes make sense on the surface -- after all, the concept is known as profit sharing and not revenue sharing -- but the legions of movie industry professionals who work under these deals are often left out in the cold.
The onrushing sea change in the movie industry's accounting practices is underscored by a leaked income statement for the Time Warner
The statement shows huge fees for distribution, advertising, and interest that all went right back to the Time Warner mothership. The more complicated the accounting practice, the easier it is to hide profits. This is why Fools tend to distrust the easily massaged earnings figure -- lower earnings equal lower taxes, and there's about a billion ways to raise or sink the bottom line to where you want it to be. Cash flows are much harder to disguise, reshape, or delete.
James Cameron made $350 million from the movie Avatar despite what I assume to be News Corp.'s
So if you're investing in Disney, Sony
Fool contributor Anders Bylund owns shares in Disney, but he holds no other position in any of the companies discussed here. Walt Disney is a Motley Fool Inside Value recommendation and a Motley Fool Stock Advisor choice. IMAX is a Motley Fool Rule Breakers pick. Try any of our Foolish newsletters today, free for 30 days. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.