Net Deal

The Myth of ‘Net Profits’

In the complex world of film financing, a ‘net deal’—also known as receiving ‘net points’—is a form of compensation where a writer, director, actor, or producer is promised a percentage of a film’s net profits. In theory, this sounds like a fair arrangement: once the film has earned back all its costs, the creative participants get to share in the success. In reality, the net deal is one of the most notorious and cynical jokes in the entertainment industry. Due to a labyrinthine and deliberately opaque accounting practice known as ‘Hollywood Accounting,’ the official ‘net profit’ of a film is a figure that studios can manipulate to ensure it rarely, if ever, materializes, even for blockbuster films that generate hundreds of millions of dollars in revenue.

Hollywood Accounting: A Masterclass in Obfuscation

The reason net profits seldom appear is that the studio controls the ledger, and the contract gives them wide latitude to define what constitutes an expense. All revenue flows back to the studio, which then deducts a long list of costs before a single dollar of ‘net profit’ is declared. These deductions famously include:

• The Production Budget: The actual cost of making the movie.
• Distribution Fees: The studio pays itself a hefty fee, typically 30-40% of the gross revenue, for the ‘service’ of distributing its own movie.
• Marketing and Advertising: All costs associated with marketing are deducted, often with little transparency. This can be an enormous number, sometimes rivaling the production budget itself.
• Overhead Charges: The studio bills the film for a percentage of its general corporate overhead, from executive salaries to the electricity bill for the studio lot.
• Interest: The studio charges the film interest on the money it fronted for the production budget, effectively making the film pay back a loan to itself at a high interest rate.

Because of these compounding, inflated charges, a film can earn a billion dollars at the box office and still, according to the studio’s official books, be ‘in the red.‘

A Cautionary Tale

The history of Hollywood is littered with cautionary tales about net deals. Author Winston Groom, who wrote the novel Forrest Gump, had a net deal and famously received nothing from the film’s massive profits. Actor David Prowse, who physically played Darth Vader, held net points on Return of the Jedi and never received residuals because the film technically never made a profit. Consequently, any agent or lawyer worth their salt will fight tooth and nail to secure ‘gross points’ for their client, which is a percentage of the revenue from the first dollar (‘first-dollar gross’), long before the studio’s creative accounting can begin. A net deal is now widely seen as a deal for the naive and powerless—a symbolic gesture worth little more than the paper it’s printed on.