Gross in Hollywood

“Nobody gets gross – not even a top dollar gross player,”

Explains one Viacom executive. This means that even top grossers such as Tom Hanks, Arnold Schwarzenegger and even Pixar Animation Studios, do not get an unlimited percentage of box office gross or any retail gross. What the top players do get is two kinds of income: fixed compensation and contingent compensation.

Fixed compensation is up-front money that is paid for making the movie. Contingent compensation is part of the distributor’s adjusted gross that participants get after some conditions are met such as a cash breakeven point or the movie earning back the amount of fixed compensation. This contingent part of the pool is made up of money that is collected through distribution or that is credited to distribution. The pool also gets the remittance from theaters that is left after the owners deduct their share and after the distributor deducts the top expenses.

Arnold Schwarzenegger’s thirty three page contract for Terminator 3: The Rise of the Machines is a good example of how gross participation works in practice. This contract is considered the gold standard for top grossing players. Schwarzenegger received $29.25 million as his fixed compensation, a record sum at the time. The first $3 million he received upon signing and the additional amount he received during principal photography. He received 20 percent of the adjusted gross receipts of the distributors as his contingent pay. Jacob Bloom, one of the top lawyers in Hollywood, worked on Schwarzenegger’s contract. Even being one of the best, he could only cap some of the collection charges at $250,000. He was not able to touch the adjusted part of the equation, which allowed the studio to deduct residuals and tax deductions. He did, however, get the DVD royalty contribution raised to 35 percent. As outstanding as this was, it meant that Schwarzenegger still only took home 7 percent of what the studios took in from DVD sales.

Schwarzenegger could not collect on his contingent compensation until the film met the breakeven point that was defined in the contract. Although it received a $428 world box office gross, it just barely reached its cash breakeven. Schwarzenegger ended up receiving only a small amount from his gross participation beyond his fixed compensation of $29.25 million. Tom Cruise did even better for Mission Impossible 2; his production company got 30 percent of the studio’s adjusted gross receipts.

Compared to Schwarzenegger and Cruise, Peter Jackson’s compensation for King Kong was a steal. Jackson’s production company received $20 million in fixed compensation for directing, script writing and producing services. In addition, Universal qualified for a cash subsidy of up to $20 million from the New Zealand government because of Jackson’s New Zealand citizenship. This, in effect, covered Jackson’s fixed compensation.

While these deals are costly, they are not unheard of. The studios these days are driven by huge franchises. Some of the most notable players, such as Jerry Bruckenheimer, George Lucas, Arnold Schwarzengger, and Tom Cruise, are all represented by savvy lawyers and agents who know the ins and outs of Hollywood. Even though not all projects turn out to be billion dollar franchises, there is little downside for studios to get top grossing players, so long as they don’t give away the real gross.

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