Chapter 112: The Trap

Even though Bill Rossis was just one of the many inconspicuous agents within CAA, his understanding of the industry far surpassed that of the novice Murphy.

Murphy had witnessed Bill Rossis's capabilities and trusted his words to some extent.

Turning to Bill Rossis, Murphy asked curiously, "Tell me more."

"As you mentioned earlier, the Big Six distribution companies charge their own studios or subsidiaries up to thirty percent distribution fees. Unlike the distribution fees for external films, which include marketing costs, this thirty percent is pure commission without marketing expenses."

Murphy nodded. This wasn't a secret within the industry. Distribution implied distribution fees, and major studios usually charged thirty percent distribution fees for their own films.

Of course, they sometimes charged thirty percent for distributing films from other small companies, but this typically included marketing costs.

Generally, if it was an agency distribution for films made by outside investors, to ensure the film reached a large audience, there would often be intense negotiations over the distribution fee percentage. However, unless the outside party was strong enough, they usually had to compromise at fifteen to eighteen percent.

In this type of distribution, marketing costs were calculated separately.

From the surface distribution fee percentages, this seemed like a strange phenomenon. Distribution companies charged high fees for their own films but much lower fees for external films.

"According to Hollywood accounting practices, every film distributed by the Big Six that they produce themselves is handled by a separate shell company..."

Bill Rossis explained this point, "So, the thirty percent distribution commission is paid to the distributor, which is essentially the same company, as an external entity's cost item."

Murphy wasn't dumb and quickly understood. "The purpose is to have the production company pay various hefty fees for the film, making it difficult for the production company to show any profit. Even if there is surplus after paying distribution fees, screenwriters, directors, actors, and other profit participants are unlikely to see any profit. They would only see a deficit on the financial statements?"

"Bingo!"

Bill Rossis snapped his fingers. "And this is a legal method. Even in court, it's hard for the litigants to win against the company."

Murphy looked up at the car ceiling, realizing this industry was even more complicated than he had imagined.

Seeing that Murphy seemed skeptical, Bill Rossis continued, "I have a real-life example."

Murphy's interest was piqued. "Could you share it with me?"

This was invaluable experience.

Although the terms offered by various distribution companies were harsh, their evaluations and attitudes towards the film raised Bill Rossis's expectations for Murphy.

After thinking for a moment, he said, "Last year, Disney's Buena Vista Pictures distributed a film called 'Gone in 60 Seconds,' produced by Disney-owned Jerry Bruckheimer Studios."

Murphy nodded, listening attentively as if he was still in film school.

These experiences might help him avoid pitfalls in the future.

"This film grossed about $240 million worldwide, and Disney's share was just under $110 million."

While driving, Bill Rossis recalled some internal CAA statistics. "After receiving the box office share, Buena Vista began deducting various costs, including over $90 million in marketing expenses, with $13.4 million for advertising, $13 million for prints, and $600,000 for insurance, shipping, customs, check cashing, and local taxes. This left around $10 million in box office revenue."

Bill Rossis shrugged. "Then, they began splitting the profits with investors, producers, and actors—after the theatrical release, the film, which cost $103 million to produce, showed a deficit of around $90 million."

"Except for the mandatory union figures..." Murphy recalled that the lead actor was Nicolas Cage, "the actors, directors, and writers couldn't possibly get any extra profit."

Murphy sighed, "Only the distribution companies and the major studios behind them can ensure they make a profit in this business model."

"Generally, that's the case," Bill Rossis nodded. "It also depends on the negotiations between actors, agencies, and the studios. There's a lot of room for maneuver. If you have enough leverage and a strong agency, and if the studio wants to continue working with you, they will likely share some of the profits. Those who rise to the top in this industry aren't foolish enough to be slaughtered."

He continued, "For example, top stars like Tom Cruise and directors like Spielberg never sign such contracts with production companies. They demand a share of the North American or global box office revenue, not profit shares, because there are far fewer ways to manipulate the former legally."

"It seems that when working with big companies," Murphy said, thinking ahead, "signing a revenue-sharing contract must be done carefully."

However, he added, "But I'm still far from being noticed by major studios."

Bill Rossis, however, encouraged him, "As long as you can enter the mainstream film circle, you'll soon have such opportunities."

Murphy never lacked ambition. He smiled and nodded, believing that he could traverse even the most distant paths step by step.

Just like when he first started and even basic living was a problem, he had seized opportunities and successfully entered Hollywood, directing two films.

Although the second film hadn't found a distributor yet, Murphy's confidence was growing.

On the third day after the screening, Murphy walked into Fox Searchlight. This company had scheduled the latest appointment, and his impression of Tony Guzman wasn't great. Strictly speaking, Tony Guzman had once stood him up.

Of course, Murphy wasn't petty enough to hold a grudge against Tony Guzman and Fox Searchlight for this. Given the current situation, he had to admit that for small directors and studios, distributors were indeed high-end entities.

Unless he abandoned theatrical releases and went straight to the home video market.

"Boss, as far as I know," in a Lionsgate office, a female assistant spoke to Milton Johnson behind his desk, "he's already visited Miramax, Maurice Entertainment, DreamWorks, and several other distribution companies. Today, he has a screening appointment with Fox Searchlight..."

Milton Johnson tapped his fingers lightly on the table. "It seems he won't easily accept our terms."

As one of the senior executives in charge of distribution at Lionsgate, he had seen countless horror films in recent years. The one that left the deepest impression was "Saw," which they didn't own the rights to.

How could he acquire this film at the lowest cost or use it to create outstanding results?

This was what Milton Johnson had been thinking about the most in the past two days.

Reducing the distribution commission might be possible, but that young director had high ambitions, and this wouldn't guarantee Lionsgate could secure the film.

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