Chapter 101: Hollywood Ledger

"Danny, several major studios are interested in 'When Harry Met Sally,' and its commercial prospects are definitely secure. However, to maintain control over this project, Daenerys Studios prefers to invest independently. On the other hand, my funds won't be accessible until the end of the year, yet we need to start shooting in September. That's why we're opting to collaborate with a third party."

Although Dennis O'Brien had proactively reached out after hearing that Daenerys Studios was seeking partners, he still sharply expressed his doubts after Simon explained the project's outline.

"Simon, as I understand, Daenerys Studios holds absolute control over 'Final Destination' and 'Pulp Fiction.' It shouldn't be difficult for you to secure the same treatment for 'When Harry Met Sally' from the big studios, right?"

Simon shook his head, "Danny, this time it's different. The key issue is that I plan to invest as well. If we partner with one of the big studios, even if we manage to retain control during the production process, the subsequent distribution, not just in North America but all other channels, would inevitably bind us completely to them. Moreover, the financial systems of major film companies do not ensure that Daenerys Studios would receive the profits we deserve, something you're certainly familiar with."

Dennis O'Brien nodded in agreement, well aware of the frustrations.

Anyone venturing into Hollywood despises the notorious 'Hollywood Accounting' of major studios and even smaller distribution firms.

To retain as much of the profits as possible, Hollywood distributors craftily inflate various costs.

Take theatrical distribution, for example. If the project is from an independent producer, the usual split between the Hollywood distributor and the producer works like this:

After the movie is released, the distributor deducts a portion of the box office as a distribution commission. The percentage depends on the agreement between the parties; the stronger the producer, the lower the commission.

In the original timeline, DreamWorks only had to pay an 8% distribution commission in deals with companies like Paramount. However, weaker producers might have to pay up to 15%.

But that's just the beginning.

The next big expense, the marketing and promotion fees, is where the 'Hollywood Accounting' really shines.

Distributing a movie certainly costs money.

Expenses for prints, TV ad placements, off-the-books expenditures for the company's failing projects, even lawn mowing at the studio or private jets for executives' vacations — they'll charge you for everything they can.

In the end.

The promotional budget, which may be less than half the actual production cost, might appear on the distributor's books as even higher than the cost of making the movie.

So, is 'Hollywood Accounting' avoidable?

No.

It's an established rule among Hollywood film companies. Even the globally successful "Harry Potter" series, which grossed billions, shows a loss on the books. Even strong producers, personally sending accountants to oversee distribution, end up with inflated marketing budgets.

Naturally, this raises a question.

Everyone knows the game.

Why then do so many investors flock to Hollywood?

Clearly.

There are strategies to deal with 'Hollywood Accounting.'

Strong capital investors often choose to invest at the level of the entire studio and then look at the overall balance, sharing both profits and losses. Regardless of how the numbers are played with on individual projects, the overall financial statements must be clear. The IRS wouldn't have it any other way.

For medium and small investors, the choice is either to sell the rights outright or to establish their own distribution.

Currently.

Simon's distribution plan for 'When Harry Met Sally' is similar to 'Run Lola Run.' Keep as many rights as possible, push the film to North American theaters first, and then gradually manage further distribution based on domestic box office performance, mainly through outright sales.

In the office.

Simon and Amy spent over an hour detailing to Dennis O'Brien the creative team, shooting schedule, distribution strategies, and other aspects of 'When Harry Met Sally.'

Finally, Simon discussed investment ratios and profit sharing.

"Danny, if HandMade Films is interested in investing in 'When Harry Met Sally,' my condition is a $15 million budget, with each of us contributing $7.5 million. However, regarding future profit distribution, as the lead producer, Daenerys Studios would take 60% of the net profits after deducting the budget costs, leaving 40% for HandMade Films."

Dennis O'Brien immediately shook his head, "Simon, that's too high."

Simon insisted, "It's not high at all, Danny. You must understand, this is under the premise of the project being profitable. Daenerys Studios is handling all production work and is actually asking for only a 20% net profit commission, which is very fair."

Dennis hesitated for a moment, then asked, "What about the process for profit settlement in the future? When can we expect to recoup our investment if we

 participate?"

"You can discuss these details with Amy next. However, Daenerys Studios is planning to stay in Hollywood for the long haul, and we certainly won't deliberately delay payments to our partners. To show our sincerity, once we reach an agreement, HandMade Films can assign an accountant to follow the entire project."

Dennis thought for a while, finally saying, "Simon, I need to discuss this with George. Maybe I can give you an answer by next Monday."

Simon nodded, "Of course, that's no problem. However, HandMade Films isn't the only one interested in this project, and Daenerys Studios offers the same conditions to everyone. We do not bargain. So, if someone responds by tomorrow, or even tonight, we'll just have to say it's unfortunate."

With that, seeing Dennis O'Brien stand up, Simon and Amy also rose.

After seeing O'Brien out, Simon and Amy returned to the company office building.

Back in his office, Amy followed Simon inside. As Simon comfortably settled into his office chair, Amy began organizing the documents they had just discussed. "Simon, you shouldn't have promised O'Brien that they could assign an accountant."

Simon picked up 'Forrest Gump,' flipping to his bookmark, leaning back in his chair with the book, "Amy, I was being sincere. I want Daenerys Studios to go far; there's no need to play tricks on these details."

Amy, putting away a stack of files, continued, "Many founders of film companies have thought the same, but, Simon, reality often forces us to play some tricks."

Simon smiled and replied, "Well, then, you can discuss reneging with them."

Amy rolled her eyes lightly, closed the cabinet, and sat down again across from Simon. "Ron, Wes, and I are heading to New York tomorrow. The location scouting for 'Final Destination' is complete, and we need to review all the sites and discuss some shooting arrangements with the Queens government and Kennedy Airport. You know, this project was your acquisition from Fox, but it seems like you're not very invested in it."

Tomorrow was Saturday.

However, the federal 40-hour work week is primarily meant to protect the lower-income workforce.

Under 'U.S. Labor and Employment Law,' executives of companies managing more than two people are not protected by the 40-hour work week regulations. Employers do not have to pay overtime for these positions.

To Simon, this essentially conveyed a simple truth: if you want to be above others, don't expect to work just eight hours a day.

Listening to Amy's half-serious complaint, Simon turned a page of his book and said, "But I'm the boss, Amy. Getting the revenue-sharing terms from Fox was my job. As for the rest, this project isn't worth my full attention."

With the script completed, Wes Craven confirmed as director, and the assistance of Amy and others, Simon was very confident in the project.

With 'The Butterfly Effect' achieving great success again, nobody doubted that 'Final Destination' would surpass the $20 million guarantee threshold. For a purely entertainment-oriented teen horror film, Simon really didn't need to invest much effort.

After a bit more conversation, Simon glanced at his watch, closed his book, and asked Amy, "It's almost time to leave. Do you have plans tonight?"

Amy raised an eyebrow, smiling, "I have a dinner date with my boyfriend."

"Oh, then never mind," Simon shrugged, explaining, "It's actually Jonathan. You know, Robert De Niro has never had an agent, and after he failed to secure the lead in 'Beyond the Future' with Fox, he's been considering signing with an agency. Jonathan wants to bring De Niro to WMA, and he's hosting a party tonight hoping I could join."

The acceleration in securing rights was also influenced by recent discoveries of various projects.

For example, 'Beyond the Future.'

In the original timeline, this film not only achieved a North American box office of over $100 million but also earned Tom Hanks his first Academy Award nomination for Best Actor.

Simon had learned about Robert De Niro's interest in this project during a private chat with Jonathan Friedman. Moreover, Fox had confirmed projects like 'Die Hard,' another big box-office hit series.

Besides Fox, there were many other hot projects from Simon's memory that he could no longer influence.

And some projects left Simon undecided whether to intervene.

Like 'Rain Man,' which was the box-office champion in North America the following year in the original timeline, and its script was still up in the air.

However, with 'Run Lola Run' nearly confirmed as this year's box-office champion, if the box-office champions for the next few years were also linked to Simon, it wouldn't just be conspicuous; it would be a question of not leaving room for others to succeed.

If others can't make it.

Tsk!

With this in mind, Simon planned to intentionally include some less popular projects from his

 memory in the upcoming rights acquisition process. With sufficient funds, he would also genuinely invest in production.

Across the desk.

Amy, hearing Simon's explanation, commented, "Even if De Niro is looking for an agency, he's more likely to go with CAA, right? By the way, why did you ask Susan to send Nicole Kidman's profile to Jonathan for recruitment?"

Simon remembered his Monday meeting with Michael Ovitz, shrugged, and said, "It's nothing much. I just think CAA is already too dominant. We should start using fewer CAA clients in the future."