This is a story about the rules of the movie business and the odds against getting rich. It's also why the little guys don't have a prayer aginst the accountants.
It's a strange story of an arithmetic in which the numbers tally, but somehow no matter how many millions of dollars are added, the bottom line ends up in red.
It's a frustrating story of a 38-year-old writer-producer (Ron Shuett) who beat his head against the wall for nine years, finally hit the jackpot and still can't afford to move out of his crummy two-room Hollywood apartment. He hasn't collected one nickel in profits from a picture he helped to conceive four years ago.
It's a classic case of Hollywood bookkeeping. The names are real and the figures authentic.
In 1979, 20th Century-Fox released 14 films. To quote a boast in the company's recent annual report, "The most successful of these during the year was 'Alien,' a suspense thriller depicting seven astronauts' encounter with an awesome galactic horror in outer space."
To Fox's stockholders, clearly, this said that "Alien" was a big hit; it made a profit. So far, "Alien" has put nearly $50 million into Fox's till.
But to those who had a piece of the movie -- its producers, writers and director -- there was another story, another report. The financial statement recently sent to them reads that their movie has taken in $100 million at the box office -- but is still in the hole. A check is not in the mail.
Those with pieces of "Alien," contacted by the Los Angeles Times and willing to talk, reacted with escalating levels of outrage: a
Dan O'Bannon, the film's screenwriter, had the mildest response: "I'm not angry about it. But we're auditing. It's probably a question of time until Fox notices its oversights."
Shusett, "Alien's" executive producer and co-writer of the story that was the basis for the script, got testy: "It scares the hell out of me. If this isn't a successful film, what is? It scares me because I can't expect to have a bigger success than 'Alien.' Here I hit the jackpot and haven't seen any money."
David Giler, who, along with Walter Hill and Gordon Carroll, produced "Alien," was angry: It's unbelievable. I really don't even know what to say about it, it's so outrageous. I think it's flagrant."
And there's Tom Pollock, by anyone's standards one of the most powerful and respected entertainment lawyers around. His clients include "Star Wars" director George Lucas, the producers of "Superman," plus Giler, Hill and "Alien" director Ridley Scott.
When the question of "Alien's" profits came up, Pollock paced around his Beverly Hills office, stammered and pushed a hand through his curly hair. A usually discreet, careful, meticulous attorney, Pollock tends to fly off the handle over this issue. He was mad.
Pollock was contracted after most of the information for this article had been collected. He was eager to speak and won clearance from his clients. Lawyers, generally, prefer to keep their grievances out of the press. But obviously, Pollock hopes public exposure will help him in his battle against Fox. Also, Pollock was willing to talk because the Los Angeles Times had been handed a copy of the producer's statement before he was contacted, affording the public a relatively rare and detailed look at the dollars and cents of movie bookkeeping.
Fox, too, was contacted. The studio was invited to explain its point of view. Spokesmen of its choice were acceptable, the Los Angeles Times made clear. However, as will be explained later, the studio's management had changed since "Alien's" release. The executives Fox chose to make its statements had each been at the studio for less than a month. c
"I'm not prepared to say yet whether this is a mistake, whether it is creative bookkeeping or whether it is outright fraud. One can't say that until one audits," Pollock said.
"But I will say that this is the worst case of its kind I have ever seen. Ever. The worst."
The official response from 20th Century-Fox? Said Saul Cooper, a publicity and promotion vice president for the studio, "This is perceived to be a successful picture, I agree. But I think it is a little naive for people to expect a payout so soon after release."
When it went before the cameras in 1978, "Alien" was an expensive film. It cost $10,791,734, according to the March producer's statement.
That number includes the 15 percent that Fox charges as "production overhead." Overhead is a common industry expense. It varies from studio to studio. Overhead pays for the expertise and assistance that filmmakers receive by working with big companies. Some, like Pollock, think the studios place too high a premium on such help.
"Alien" was released May 25, 1979. Almost immediately there were lines around the block at local theaters playing the film.
The most recent quarterly statement sent to those hoping one day to get rich from "Alien," the film's profit-participants, reported that "Alien" had returned more than $48 million to Fox. That's worldwide revenues. It includes only money that Fox had in hand. There's more coming, but it doesn't count until it's in hand. (More about that later.) In "box-office" figures -- that is, the amount of money moviegoers actually placed down at ticket counters for "Alien" -- the number jumps beyond $100 million.
So, here is a certified blockbuster, No. 4 on Variety's list of "Big Rental Films of 1979" (behind "Superman," Every Which Way but Loose" and Rocky II"), a film which collected revenues approaching five times its cost (including overhead), and the bottom line shows a loss of $2,407,427. No profit checks.
How can that be -- especially when the rule of thumb says that movies should break even once they've collected 2 1/2 to 3 times production costs?
First, distributing and marketing films is expensive. Fox claims that the advertising costs -- which includes network TV spots, newspaper ads, trailers, posters, publicity junkets and promotional schemes -- came to $15.7 million.
Then there is the distribution fee, which Fox, like all studios, takes off the top. A distribution fee is the charge levied against producers for selling their films to theaters and the public. It helps to pay the salaries of secretaries, salesmen, press agents and advertising executives both in Los Angeles and around the country.
Film companies -- for example, Warner Bros., United Artists, Paramount, Columbia, Disney, Universal and 20th Century-Fox -- charge producers a fixed rate to distribute their films. The fee, as with "Alien," is 30 percent in the United States and Canada and between 37 1/2 percent and 40 percent in foreign countries. Distribution fees for "Alien" add up, so far, to nearly $15.5 million.
Fox contended that it spent $3.1 million to make prints for the film, including 70mm Dolby prints used during the initial release in May and June. i
For the 70mm prints, the tab was nearly $900,000. That leaves $2.2 million for the 35mm prints. It is considered extraordinary to strike more than 1,000 prints of any film. But, according to the producer's statement, Fox has spent enough on prints to make 2,200 35mm copies.
Add nearly $1 million for various taxes and duties charged by governments around the world, $150,000 for shipping and delivery of prints and other materials, $312,000 to dub and subtitle the foreign versions and more than $225,000 for various trade-association fees. And don't forget another quarter-million for "miscellaneous expenses."
In addition, the producers were penalized $1.9 million because they went over budget during production. This is one point under fierce dispute.
Also, while a movie is recouping its costs -- both production and distribution expenses -- interest is charged, generally at the rate of 125 percent of the prime rate. With the prime at 20 percent during March, that meant "Alien" was sometimes being charged 25 percent interest. Interest charges for "Alien," per the most recent statement, come to $1.7 million.
And then, because some theater owners don't pay their bills on time -- maybe even try to cheat Fox -- there is an item in the producer's statement for "checking and collection." Cost: $229,114.
As it was put by Fox's senior vice president for business affairs, Leon Brachman (who has been on the job for less than a month and was not involved with the negotiation of any of the "Alien" contracts), "In a sense, the numbers kind of speak for themselves."
Bachman is right, they do. The numbers say a loss of $2.4 million. The numbers add up. But look at the way they add up:
First, according to the producer's statement, to date "Alien" in the United States and Canada has returned $37,070,693 to Fox. However, in the Jan. 9 issue of Variety, it was reported that "Alien" has amassed $40,086,573 in those markets. That number was provided to Variety by Fox.
"Isn't that strange?" Pollock wondered out loud.
At the same time, Fox claims to have spent $15,703,841 in "advertising costs." Well, it hasn't necessarily spent all that yet. Part of the money is "committed" for future ad buys. Fair enough, since Fox has signed contracts for those expenditures.
As for the discrepancy between the $37 million that Fox said it has collected from theater owners in the domestic market and the $40 million that it reported to Variety, it's, again, a matter of collection. Fox doesn't credit a picture until the money is in hand.
Essentially, there are two methods of accounting in any business. There's the "cash basis," in which accounts are credited when money is actually collected and debited when it's actually spent. Or, there's the "accrual" method. Here charges are noted and income credited once it has been put on the books. Usually, it's one or the other -- accrual or cash. Not in the movie business.
"The studios are on an accrual basis when it hurts the profit participants and on a cash basis when it hurts the profit participants," Pollock emphasized. "You can't tell anything until you send a guy in to check it out."
Further, it has been learned that ABC has purchased "Alien" for four airings for $14 million. Generally, money for a TV sale is paid at the time the film is put on television. Usually, though, there is a 10-percent down payment -- in this case $1.4 million.
"But then again, sometimes you don't get 10 percent down," Pollock said, speaking of TV sales in general. "Sometimes what you get is that the studio's television division gets a confirmed pilot deal on the air. (A network agrees to purchase a TV pilot it really doesn't want.) No way to prove that."
There are other disputes, all of which will be brought up during the audit. The over-budget penalty is one.
"Alien" was budgeted in dollars but produced with pounds in England. During the course of production, the price of the British pound against the dollar fluctuated. The dollar became less valuable. Part of the "over-budget" expense on this film, claim the disgruntled, was caused by the fluctuation of the dollar, something over which they had no control.
Agents encourage clients to audit just about every film. The cost to have an outsider look at the books, for U.S. and Canadian expenditures and credits, runs about $15,000.
"I have never, in all the pictures I've [had] audited, not seen an audit that didn't pay for itself, meaning that the auditor did not find at least as much money to pay for the audit," Pollock said. "We have had audits of major studios that have uncovered millions of dollars of errors."
Eventually, just about everyone agrees, "Alien" will show profits, probably in the next statement, due this month. By then, additional monies from overseas will have been counted, as will some revenues from the TV sale and additional domestic revenues.
"I expect that many of these things will ultimately be settled favorably to the profit participants," Pollock said. "But they'll be settled when interest rates are back down to a more 'normal' -- 10, 11, 12 percent -- than now, when it's 20 percent."
"Every dollar that the studio can hold on to for another week longer is enormously important to its profit position," Pollock said.
In the meantime, Fox is holding on to a lot of cash. So in a sense, the words to its stockholders are true. "Alien" gave Fox millions to work with.
"And remember, none of these things are endemic to Fox," Pollock said. "They are industry-wide. They are among the ways the studios legitimately do business. They are the things they make you agree to up front. To get movies made you have to accept their accounting."
Of course, for some people, it doesn't matter. If your name is Redford, Brando, Streisand or Eastwood, you create your own rules. You participate in the gross receipts of a film.
"There are only two ways around [the system] -- have your own money or have enough power to get out of it. You can't change the rules," Pollock said.