Chapter 88: Unreliable Revenue Sharing

As the cost of a movie rises to a certain point, production companies become exceptionally cautious in their reviews and investments. Although James Cameron's two major works truly ushered in the 100 million dollar production era in Hollywood, the huge investment called for by Duke for *Independence Day* can be described as exceedingly rare.

Even small productions with budgets of only a few million dollars undergo strict scrutiny from film companies, let alone projects like *Independence Day*. The birth of every film project with a budget exceeding ten million dollars is an exceedingly complicated process.

In Hollywood, the process from a script concept to actually getting the production company's green light is referred to as "greenlighting." In addition to the necessary review by the committee, there are numerous preliminary investigations.

First, there must be a script that is of sufficient quality and creativity to interest the production company.

Second, the script must undergo a systematic review by the production department, which will analyze whether the script is innovative, has commercial value, and fits the production company's product framework. If it passes the review, the production department will estimate the film's production costs, tax costs, and more.

Third, the project will be reviewed by the distribution department, which will work with distributors to investigate various questions—what is the commercial value of this film? Who is its target audience? Is it adapted from a novel, does it have a fixed fanbase? Can this film integrate into the production company's global distribution system? Will there be support from collaborating television and video tape partners? What is the film's genre and release timing? Is there potential for product placement? Is there potential for award nominations? In the past and the next 18 months, how many similar films have been released or are in preparation? How did they perform? What is the expected return on investment?

Fourth, establish the production team. For *Independence Day*, this was a relatively simple issue.

Fifth, finalize filming details and collaboration intentions…

Sixth, once the budget, filming locations, and production team all receive approval, the project finally obtains the "green light."

In fact, this is just a general process and does not fully reflect the complete and intricate commercial rules of Hollywood filmmaking. However, some data may shed light on this point.

For example, Hollywood production companies receive over 15,000 scripts each year, but only around 300 films enter production, and it's unclear how many of those have been on the shelf for years.

Even with Duke's success from *Speed* and *The Rock*, companies like Warner Bros. still only have increased confidence in him, prioritizing his projects but not easily granting green lights, especially considering the investment of over 100 million dollars.

"Warner Bros. and 20th Century Fox have completed their initial reviews."

In the Duke studio, Nancy Josephson sat opposite Duke, lightly tapping her fingers on the makeshift desk, "Their production, distribution, and marketing departments have temporarily given the project an A-grade evaluation, provided the film achieves the effects described in the script."

"As long as the funding is sufficient, I think that shouldn't be difficult for me," Duke replied.

Special effects cannot be skimped on; different price ranges yield completely different results. If the project passes smoothly, Duke's first choice for special effects will undoubtedly be Industrial Light & Magic!

"Have the tripartite talks taken place?" Duke asked again.

"I've met with the management of Warner Bros. and 20th Century Fox three times."

As she spoke, Nancy gently rubbed her forehead, her face seemingly showing signs of fatigue, likely due to the considerable energy expended. "We've basically reached a cooperative filming intention. If the project passes the final review from both companies, they will each be responsible for half the investment. For distribution, we've also reached a preliminary consensus; Warner will handle overseas distribution, while 20th Century Fox will take care of North American distribution."

Involving other companies in the filming is a common method for reducing investment risk in big productions. The competition between Warner Bros. and 20th Century Fox during the summer release season is exceptionally fierce; the fact that they can sit together for negotiations is enough to illustrate the survival norms between large Hollywood companies, where competition and cooperation are eternal themes.

In simple terms, in the face of profit, no commercial conflict is irreconcilable.

"Nancy, about Warner and Fox…"

Since the initial review has passed, the likelihood of project establishment is extremely high. Duke asked his agent across the table, "Are we planning to invest independently or seek financing?"

"They're preparing to start pre-sales; if the project review concludes, they will contact you immediately," Nancy leaned back in her high-backed chair, "discussing the possibility of product placement in the film."

For such a high-investment, modern societal-themed commercial film, not having product placements is practically impossible. Duke is not opposed to this, as he plans to arrange ads to appear at appropriate times and places, just like *The Rock* did.

"With pre-sales, there will definitely be third-party guarantees." Duke sighed. No director actually likes the involvement of third parties, as it means more disputes and reviews.

However, Hollywood has a mature film system, and the completion guarantee system is ostensibly the greatest assurance of investors' interests. Production companies want to attract global distributors, video tape partners, television stations, etc., to conduct advance sales or publicly raise funds for shooting, and third-party guarantees are essential.

"Duke…" Nancy tentatively asked, "Are you not planning to invest?"

"My dear, I need to pay back my mother's loan, and the revenue from *The Rock* won't arrive for at least a few months."

He spread his hands, appearing somewhat helpless. He wouldn't overestimate Warner Bros.'s willingness; the agreement stipulated payment within six months, and they might insist on that to the end. "Right now, I only have one million dollars in hand. Even if I can borrow some money from the bank, it's still far too little for the film's immense investment."

At this point, Duke's mouth curved into a slight smile, "I believe I now have the capital to negotiate terms with the production companies, right?"

"Of course!" Nancy nodded without hesitation.

For any director, consecutive box office successes over a 100- Million dollars in North America and over 300-million worldwide give them the capital to negotiate aggressively.

"Nancy, I want you to help me secure a 1+2 salary contract!"

As soon as Duke finished speaking, Nancy understood and asked, "Ten million dollars base salary plus twenty percent of the film's revenue?"

"No, I don't want a net revenue share." Duke shook his head and added, "I want a share of the pre-release box office revenue!"

To stimulate the creative desires of directors or actors, Hollywood allows major directors and popular actors to share box office and copyright revenues. Currently, the maximum share can reach twenty-five percent, and a director's income is directly related to the box office of their last three films.

This revenue can be divided into two major categories: online and offline.

Online mainly refers to the film's box office revenue, which can be further divided into direct percentage of total box office revenue and net revenue share after deducting all costs. In today's market, films can still benefit from box office revenue. If we push this back ten years, the latter would be a trap.

Offline includes all surrounding income, such as copyrights. This area has always been a no-go zone for distributors and production companies. Overall in Hollywood, only a handful of directors and actors can participate in this.

For instance, if Spielberg's *Jurassic Park*, which is still maintaining its popularity, sells as well as it once did, he could earn at least 200 million dollars from all the film's revenues!

Duke has always been clear-headed. He now has the qualification to demand a share of online income, while offline is off the table.

Of course, he won't negotiate like this; Nancy Josephson is experienced and should know how to handle it.

This is not just based on his own capital considerations but also for another reason: in this relatively less fluid information era, global revenue from films is not as easily monitored as box office statistics.

Take Warner Bros. as an example; Duke had previously seen a related report that although *Harry Potter and the Order of the Phoenix* made over 700 million dollars in total revenue in North America, it reportedly lost nearly 200 million dollars!

The reason lies in the fact that Warner Bros. deducted as much as 200 million dollars for 3D copies and distribution costs—expenses paid to themselves, as well as 140 million dollars for advertising expenses—most of which were also paid to themselves, and an additional 77 million dollars in interest—again, a fee generated through internal borrowing.

Just relying on these few items, Warner Bros. had already earned at least 400 million dollars. But after these expenses were deducted, along with 200 million dollars in production costs and other expenditures, they appeared to incur huge losses from an accounting perspective.

Thus, those who signed net revenue share agreements with the production companies receive very little.

The most important thing is that, from a financial and legal standpoint, Warner Bros. is not in violation of any rules.

So, considering all aspects, Duke's aim is to obtain a percentage of total box office revenue rather than the unreliable net revenue share, and even in the future, he will not sign any nonsensical net revenue share agreements with Hollywood companies!

If it weren't for the current lack of capital, Duke would have even wanted to demand a share of all the film's revenues.

In the future, more Hollywood filmmakers will still rely on large production companies to discover their conscience and allow them to share a portion of the "profits."

In reality, capital will never have a moment of moral awakening.

After talking with Nancy Josephson, Duke returned to work mode. Not only did Sofia Coppola quickly resume her role as an assistant, but he also gathered team members such as Zack Snyder, John Schwartzman, Robin Grand and Joss Williams, who had just returned from their vacations, to formally prepare for the upcoming *Independence Day* project.

Later, Nancy brought news that Paramount Pictures was interested in investing but had been rejected by both Warner Bros. and 20th Century Fox. The two companies completed the final review at almost the fastest speed allowed by the program. By September, when Duke and his team had already drawn up a rough script outline, *Independence Day* could finally be approved.

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