Interesting Tim O'Reilly article.

From: Wayne M. Smith <wmsmith_at_earthlink.net>
Date: Sun Dec 15 01:13:00 2002

> It was thus said that the Great Wayne M. Smith once stated:
> >
> > > It was thus said that the Great Wayne M. Smith once stated:
> > > >
> > > > > -BZZZTTTT- Wrong answer... the recording industry contracts state
that
> > > > > Yes, you can ahve your contract audited, but only with a list of
> > 'approved'
> > > > > auditors, as a matter of fact if you show your contract to ANYONE you
are
> > > > > in violation of the contract.
> > > >
> > > > I don't think that's right. There are restrictions that prevent hiring
an
> > > > auditor on a contingency fee basis, and using an auditor who is
performing
> > an
> > > > audit of the same company on behalf of another artist at the same time.
I
> > have
> > > > never heard of the "approved list" you mention.
> > >
> > > According to Steve Albini [1] a band who sells 250,000 albums (not that
> > > bad a showing) will make $710,000 for the record company, and only $4,000
> > > *per band member*. $4,000. Given that an audit can cost anywhere from
> > > $10,000-$100,000 [2], even if the band in question *wanted* an audit, they
> > > aren't going to very well afford one, are they? And there *are*
> > > restrictions on what they can audit [3], but I've yet to find any
> > > restrictions on who can do the auditing.
> >
> > I read Albini's article. The $710,000 number he puts out is "gross proft"
which
> > is not what the record company makes. The net is much lower.
>
> So you mean that the artist makes even *less* than $4,000?
>
> And you are still defending the RIAA?
>
> While not the music industry, it is well known that you *never* agree to a
> percentage of the net in Hollywood (movie industry) but of the *gross* since
> *no* movie ever *nets* if the accountants are any good. Even a movie
> pulling in thrice what it cost is still considered having lost money (I
> suspect it has to pull in ten times the amount before a net profit is
> called).
>
> -spc (How pulling in three times the expense can still be considered
> loosing money I will never know ... )
>
Please don't stoop to labeling me a defender of the RIAA because you disagree
with me -- I am defending nothing but my own opinions.

Under GAAP, "gross profits" does not include overhead, and many, many companies
that show a gross profit also show a net loss. In simpler terms, "gross
profits" does not equal "profits". You need to compare apples to apples.

Participations defnitions labeled "gross profits" have not been used in the
entertainment industry since the Buchwald case ten years ago. Buchwald argued
that because the studios labeled their participations definition "gross
profits," they should be stuck with the GAAP definition. That was the end of
participations based on "gross profits" definitions. Since then, participations
are calculated against "defined proceeds".

I suspect that your notions of what a movie "pulls in" and its profitability are
based on box office receipts compared to negative cost. Given that the studios
only receive about 1/2 the domestic box-office receipts, and only about 40% of
foreign, and that the reported "cost" of making a movie does not include prints
and advertising, a movie does in fact need to "pull in" about three times its
cost in the box office in order to break even -- at that point in its
distribution. Because this happens with only a small percentage of films, most
don't make anything, if in fact they ever do, until the money from DVD and
television sales rolls in.
Received on Sun Dec 15 2002 - 01:13:00 GMT