In: Business and Management

Submitted By vijsesh
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Forrest Gump:
Management Accounting at the Movies

Hollywood accounting can be every bit as creative as a good movie script. At least, that is what some lawyers and journalists seem to be telling us. According to news reports, the hit movie Forrest Gump, which won “Best Picture of 1994” honors at the Academy Awards, claimed a worldwide theatrical gross of $661 million through May of 1995. That amount excludes videocassette and soundtrack revenues, and it doesn’t include licensing fees of Forrest Gump products such as wristwatches, ping-pong paddles and shrimp cookbooks. Yet, according to Paramount Studios, the film project lost $56 million dollars on a box office gross of $382 million through December, 1994 (see Exhibit 1).

Forrest Gump is the latest of a string of hit movies to report a loss. Other losers include Batman, Rain Man, Dick Tracy, Ghostbusters, Alien, On Golden Pond, Fatal Attraction, and Coming to America. Each of these motion pictures grossed well over $100 million, but in each case, costs were reportedly greater than revenues.

The production costs for a film, part of what the studios refer to as “negative costs”, represents only part of the cost of the project. In addition, studios add promotion and distribution costs, advertising overhead, and distribution fees to the total negative costs to get the total cost of the project. A significant portion of the negative costs is the payments made to “gross participants” on the basis of a percentage of gross revenues. This leads to what Hollywood accountants and lawyers refer to as the “rolling break.” Two of the costs (the amount retained by the theaters and the gross profit participation) may be discontinuous for some motion pictures and change with changes in the amount of the box office gross or with time. Alex Ben Block, executive editor of The Hollywood Reporter explains:


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