Cory Doctorow revisits a 2009 Harry Potter participation statement, marveling at how the hugely successful fifth installment manages to lose $167 million on paper:

I think this is also a great example of why all financial numbers released by the entertainment industry should be treated as fiction until proven otherwise.

I get balance sheets like this every quarter on the movies I’ve written. I think it’s naive to call them fiction. Every industry — from oil to tech to toys — has ways of obfuscating exactly how much money it’s making.

The difference with movies is that the average filmgoer has a pretty good idea which movies are hits and which are bombs, so when a movie like HP5 shows a deficit, our bullshit detectors start beeping.

Some important things to keep in mind:

  • The studio charges each movie a distribution fee. For HP5, that totaled 34.7% of the gross — a $211 million cut of $609 million. Warner Bros. is keeping that money. So the studio has made a profit, even if the movie itself hasn’t.
  • Prints — the film running through the projector — are still a huge cost. For HP5, they spent $29 million. Digital projectors can bring that number down.
  • Residuals matter. Even though the movie isn’t profitable on paper, the film has paid out $10 million in residuals (almost entirely to the actors, writers and director) in the two years between when the film was released and this statement.
  • They claim the movie cost $315 million. In the case of Harry Potter, I suspect JK Rowling is getting paid here, since no gross participants are listed.

Very, very few movies will ever show a profit on a participation statement like this.

When you read stories about writers or producers auditing a feature, it’s not because they disagree with the math on the page. Rather, they think the numbers themselves are wrong. Ten million here, ten million there, and suddenly you’re talking real money.

And it’s not always clear-cut how the money should be tallied.

An example: Sony sold broadcast rights to the first Charlie’s Angels to ABC as part of a bundle of films. I forget the exact figure — maybe $40 million? The studio accountants wanted to divide the money among the films in the package. So if there were 10 films in the package, each would get $4 million.

One of the producers balked, arguing that Charlie’s Angels was by far the biggest movie in the package and deserved the lion’s share of the ABC money. I don’t know that disagreement got settled, but the same kind of haggling happens every day.