How Harry Potter Movies Technically Lost Money

How Harry Potter Movies Technically Lost Money

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for 30 days at Welcome to Half as Interesting—we’re like
a Hogwarts class about weird Muggle facts taught by a less funny version of Fred and
George Weasley. If your boggart is outdated memes, you should
probably leave now, but if your Patronus is keyboard cat, you’re in the right place,
but here’s where the big reveal comes: this video isn’t really about Harry Potter stuff. It’s about accounting. First of all, goodbye everyone, but second
of all, we’re about to dive into how, despite having some of the highest box office grosses
in Hollywood history, some of the Harry Potter films technically lost money. Let’s start with some simple economics:
most people like having money, and most people don’t like giving money to other people. It’s a fact that some think is great, others
think is bad, but no one can dispute is true—kind of like how people feel about Dumbledore and
Grindelwald making out. With that in mind, let’s move on to another
economic concept: net profits. Simply put, net profits are what you get when
you take the money something makes and subtract the money that it costs to produce. So, if Brilliant pays me $100 to make an HAI
video, but it costs $40 to pay the security guard at my editor sweat shop, $30 to bribe
Susan Wojcicki to put the video on trending, and $20 to license the HAI initialism from
Helicopter Association International, I’ve turned a net profit of $10—just enough to
buy a banana. So now, let’s get into the accounting. A while back, movie stars decided that being
beautiful and famous and rich wasn’t enough for them—they wanted to be beautiful and
famous and very rich. They figured that the way to get very rich
was to negotiate into their contract not only a salary, but also a share of the movie’s
net profits. That way, if the movie made a lot of money,
the actor would get some of it, and for a while, this worked—but then the studios
realized that instead of giving the actors the money they wanted, they could just screw
them out of it. All they had to do was hire someone to lie
and cheat and steal—in other words, they had to hire accountants. Don’t worry, no accountants are watching
this video. It’s tax season, aka corporate slavery season. Here’s what those accountants did. They set things up so that each movie would
technically be made by its own little company, created specifically for that movie. So, when Warner Brothers made Harry Potter
and the Order of the Phoenix, they had their accountants create a shell company called
Harry Potter and the Order of the Phoenix, Inc, but for short, let’s called it HPATOOTPI…
okay actually no, let’s just call it Phoenix, Inc. Phoenix, Inc is who technically makes the
movie Harry Potter and the Order of the Phoenix, and if Phoenix, Inc were to make a net profit,
then anyone who is owed a portion of the film’s net profit would get paid. So, if Daniel Radcliffe had negotiated to
earn 1% of net profits, and Phoenix Inc made $100 million in net profits, Daniel Radcliffe
would earn $1 million—money he could use to avoid starring in movies where he plays
a corpse or has guns bolted to his hands—but the thing is, no matter how much money the
actual movie makes, Daniel Radcliffe will never get a cut of the profits, because Phoenix,
Inc will never make a profit, because it is designed specifically to lose money. Now of course, the company doesn’t actually
lose the money. They know exactly where it went—to the very
studio that created them. In this case, Warner Brothers. You see, to make sure it doesn’t make a
profit, Phoenix, Inc will pay Warner Brothers exorbitant fees for distributing and advertising
the film—no matter how much it actually costs to do those things. Here’s the actual balance sheet from Harry
Potter and the Order of the Phoenix. The movie grossed nearly $1 billion dollars—at
the time, it was the 6th highest grossing movie ever—but according to the balance
sheet, it lost $167 million dollars. So, where did that $1 billion go? Well, some of it went to the movie theaters,
some of it went to the cost of actually making the film, but the key to Hollywood accounting
lies here, in the costs of advertising, distribution, and interest. Phoenix, Inc paid the studio, Warner Brothers,
$212 million dollars to distribute the film, $130 million for advertising and publicity,
and another $57 million in interest, but remember, Warner Brothers created Phoenix, Inc, so they’re
paying all that money to themselves. By doing it this way, they ensure that Phoenix,
Inc overpays, and thus makes no profit, and thus, anyone who would have shared in Phoenix,
Inc’s net profits gets nothing either. It’s not just Harry Potter films that have
had their profits disappear like Neville Longbottom’s baby fat. In fact, according Edward Jay Epstein—author
of The Hollywood Economist and yet another Epstein who didn’t kill himself—nearly
every movie ever released has, on paper, lost money. In an interview in 2011, David Prowse—the
man who played Darth Vader in Star Wars: Return of the Jedi—said that he still gets letters
claiming he can’t be paid any residuals because the film hasn’t turned a profit,
despite the movie grossing $475 million on a $32 million budget. So remember, if someone offers you the net
profits of a movie instead of paying you upfront, tell them no. Meanwhile, if someone offers to speed up and
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100 thoughts on “How Harry Potter Movies Technically Lost Money

  1. "people like having money and don't like giving it to other people"

    Eeeeeeh? The entire point of money is to exchange it with other people for goods and services. If you don't give your money away, it just becomes useless paper.

  2. Accountants in Australia aren't in Corporate Slavery Season yet!…. FYI that's not a balance sheet, it's an income statement or a profit and loss.

  3. I'm an accountant and his jokes put a smirk on my face. Also, Forrest Gump never turned a profit. It's how I first learned about Hollywood accounting.

  4. I watched Harry Potter all day for a month before, I still do but I remember the movies scenes randomly throughout the day

  5. I’m sure this is true, but I also assume that actors’ agents aren’t stupid and they are well aware of this trick. I’m also skeptical that a corporation can form another corporation that it controls completely even though the parent corporation owns no part of the subsidiary corporation.

    In other words, who own’s Phoenix Corp? I assume Warner Brothers because who else is going to invest in a company that only exists to NOT make a profit? So, Warner Brothers owns Phoenix Corp, which means any money that goes to WB goes to WB’s profit – UNLESS WB has genuine expenses that reduce the net to zero. Unlikely, because WB has owners who want to make a profit.

    My guess is that “independent” corporations like Phoenix exist to protect shareholders (like WB) from any liabilities. These temporary corporation have been a thing for at LEAST sixty years, so actors wouldn’t be so clueless as to sign up for a percentage of the temporary corporation’s profits, but the parent company’s profits instead. Tricks like these only work once.

  6. "This video isn't really about Harry Potter stuff. It's about accounting."

    Oh, so Sam runs Gringotts!

    clap Case closed, lads, let's pack it up.

  7. Does this mean Robert Downey jr. and Benedict Cumberbatch received less money than other actors for Endgame because they were getting % from the grossing unlike others?

  8. "This video isn't really about Harry Potter stuff, it's about accounting."
    Me, as an accounting nerd: Great, because if it was I'd leave.

  9. today i was just asking my mom, who was an accountant, about how they budget stuff. she's too busy to explain because she's doing her taxes, so im glad this video was around

  10. Poor david prowse got to play the most iconic movie villain of all time and got totally shafted by George and disney

  11. wouldnt phoenix inc also have to pay warner bros for using its trademarks etc?

    they could save even more money if the entity which was making the profits was registered in a country with low taxes :p

  12. That is an income statement, not a balance sheet. An income statement shows revenues less expenses, which equals net profit. A balance sheet shows assets, liabilities, and equity (assets must equal liabilities and equity combined).

  13. And this is why (knowing) actors now negotiate for a percentage of the gross, plus back-end from the studio directly; so they actually get paid money. A percentage of the *net* will mean they always lose, but a percentage of the gross is built into the distribution up front.

  14. When he said they needed to hire someone to lie and cheat and steal I thought he was gonna say “They need to hire Eddie Guerrero”

  15. “It’s a banana Michael. What could it cost? Ten dollars?”

    I love that arrested development joke – thanks HAI for making my day 🙂

  16. That looks more like a Statement of Comprehensive Income (PnL) rather than a balance sheet. Balance sheets don’t really have expenses, they have things like accruals and prepayments.

  17. 3:44 Hey, that lady isn't a director, she was a scientist or an engineer or something in another clip! It's almost like you're using stock footage or something. But that's not possible, so she must have just had a very drastic career change, or something. Stupid cameraman, filming the director.

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