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How Harry Potter Movies Technically Lost Money
Movies, especially blockbusters, are supposed to draw in big crowds and earn lots of money. And it’s expected that a movie dominating at the box office would rake-in big bucks, right? Yes, but with some accounting magic, most movies lose money, and they’re designed to. Here’s why: 👇👇
The Big Wands:
Let’s look at Harry Potter and the Order of the Phoenix, the 5th biggest movie of 2007. Even though Warner Bros. made this movie, their accountants created a shell company called Harry Potter and the Order of the Phoenix, Inc. If Phoenix Inc. made a profit, anyone who is owed a portion of the movie’s net profit would get paid. For big name actors like Daniel Radcliffe, his contract with Warner Bros. would include the basic salary for acting and a cut of net profits from Phoenix Inc. So, if the movie does really well and Phoenix Inc. makes $100 million, and Radcliffe negotiated 1% of net profits, he would get $1 million. Except he won’t.
Accounting Magic:
That’s because Phoenix Inc. is designed to never make a profit. Through the magic of accounting, any profits from Phoenix Inc. would be paid out to the studio that created it, WB. WB charges Phoenix Inc. absurdly high fees for distributing and advertising the movie, no matter what it actually costed. The movie grossed nearly $1 billion, but according to the balance sheet, it lost $167 million. Why? Some of that money went to theatres, productions costs. A huge chunk, $212 million for distribution, $130 million for advertising and $57 million for interest. WB created Phoenix Inc. to pay themselves nearly $400 million for the movie. So, Phoenix Inc. overpays and makes no profit, and anyone who has shares to Phoenix Inc.’s profits get nothing. Voila!
This isn’t just isolated to the Harry Potter franchise, almost all big movies operate that way. So, instead of Fantastic Beasts and Where to Find Them, you now know about the Disappearing Movie Profits and Where to Find Them.
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