There is No Net: Schuyler Moore's Modest Proposal to Mend Hollywood Accounting

Schuyler M. Moore is a partner in the corporate entertainment department of Stroock, practicing entertainment, corporate, and tax law. Accordingly, he's an expert on how Hollywood films are financed - and then generally fail to pay back third-party investors.

Or, as screenwriter and playwright David Mamet observed in 1988: "[T]he first rule of Hollywood is there is no net.”

On Dec. 15th, 2011 Schuyler Moore wrote an opinion piece for the Hollywood Reporter suggesting a revamp of how Hollywood pays back investors and accounts for the expenses of making and marketing films - a system that has lead to "widespread distrust of studio bean counters [and] has contributed to the retreat of investors from Hollywood and escalating demands by talent for higher upfront pay because they're skeptical of getting anything on the backend."

What does attorney Moore suggest? Basically, the deal that I began offering to actors working on my independent films back in the 1980s: Bonuses based on box-office performance.

How would that work? Basically, if the film performs to a certain (objective monetary) level at the box office, then lump sum payments are due. For example, a producer looking for indie financing of $1 million dollars (offering 10 units at $100,000 each) could promise investors recoupment of 100% of their money should the film reach a certain box-office number - with subsequent bumps should the movie continue performing. E.g., if the film grosses $20 million domestically, for every $100,000 of investment that investor would receive a payment of $100,000, same thing for hitting $25 million and $30 million.

Note: It's rare for an indie film to make millions at the box-office - so investors may not like these odds. But the chance of tripling their money should the movie hit $30 million (with no excuses like "we haven't reached breakeven because of high distribution expenses," etc.) might make the deal more attractive.

Also Note: The indie filmmaker offering such a deal to investors - and the investors - are both gambling that a third-party distributor will emerge who is willing to assume such obligations. Legally the distributor must agree to "assume" all such obligations: Otherwise the producer might be liable for payments (triggered by the film's theatrical success) that the producer doesn't have the resources to pay.