How Harry Potter Movies Technically Lost Money - YouTube

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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If your boggart is outdated memes, you should probably leave now, but if your Patronus is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.

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