Top Hollywood executives yesterday lashed out at recent charges that the movie studios systematically cheat profit participants in motion pictures through double-billing of costs or other bookkeeping irregularities.
Frank Wells, president of Warner Bros., told a group of Wall Street securities analysts who are here on an annual visit to Hollywood that while the accounting on the costs and profits of a movie can be extremely complex, "No one cheats in the preparation of these accounts."
Wells said that Warner Bros. over the past six years has paid out film proceeds to about 700 profit participants annually -- averaging $30 million a year -- and that out of the approximately 4,000 statements sent out over this period, "less than 0.2 percent have resulted in lawsuits."
Many stars critical of the present system, however, complain that the studios have batteries of lawyers who can keep the disputes in litigation for years, delaying eventual settlement while the studio continues to have use of disputed funds. These practices deters lawsuits in the first place, the critics say.
Wells' remarks came in the wake of the brouhaha surrounding David Begelman, the former head of Columbia Pictures studio who was reinstated in December despite his admission that he misappropriated more than $60,000 from the company Begelman resigned over the weekend because of continued publicity about the incident.
The Begelman affair bought to the surface the grievances many actors, directors and other Hollywood talent hold against the studios. The complaints primarily involve how profits on successful motion pictures -- which can run into the tens of billions of dollars -- are divided. It also threw studio business practices into the full glare of publicity.
Wells, in his remarks, noted that on a single motion picture there can be as many as 120,000 separate bookkeeping transactions, which he conceded leaves room for some errors. Profit participants, he said, are encouraged to audit a company's books on top of the studio's own internal audit.
"If there is a plain mistake, we rectify it immediately," he told analysts, "and if there is a gray area of interpretation, we talk about it."
Warner Bros. has been involved in litigation since early 1975 over "The Exorcist," its most profitable film ever Screenwriter William Blatty and director William Friedkin have filed separate suits alleging that they have not received the shares of the movie's profits that were due to them in part because of expenses they say were unfairly charged to the film's budget. The studio has denied any wrongdoing in its responses to the two lawsuits.
Warner executives declined to elaborate on an announcement made Monday that former United Artists Chairman arthur Krim and four of his top associates will be forming an autonomous movie production company within Warner Bros. Its initial capitalization of about $90 million makes it the size of some studios.
Sources indicated that about $25 million of the financing came from Warner Communications, Inc., parent of the movie studio, which is involved in the joint venture with the new Krim entity, as yet unnamed.The remaining $65 million is in the form of bank credit lines obtained by Warner.
Under the arrangement, Warner Bros. will provide advertising and distribution for the new company, which is planned to increase the number of Warner releases by an estimated dozen films a year by the time it gets rolling. Currently, Warner has a release schedule of approximately 20 films for 1978. The Krim Association could turn Warner into the largest of the movie distributors in terms of total releases.
Meanwhile, United Artists made a Presentation to the entertainment analysts on Monday, attempting to convince them that the wholesale departure of the highly successful movie company's top officers (resulting from a dispute with parent conglomerate Transamerica Corp.) would not break
Andreas Alb UA's record-breaking stride.
Andreas Albeck, the new UA president, said his company would produce 12 to 14 films in 1978 at a cost of about $90 million. He also defended Transamerica's manangement controls, a source of complaints by the former UA officers, saying they were "not bureaucratic or counterproductive."