Any reason to believe that this is an instance of Hollywood Accounting? At a glance, wikipedia says the film cost $190m, which seems reasonable for a film like this, and only received $124.5m in box office sales. Conversely, wikipedia lists Harry Potter OotP as a "150–200 million" budget on $942m in box office sales.

It's certainly possible this is a case of Hollywood Accounting, but is there any particular reason we think it is, vs just a film losing a lot of money normally?

Quoting box office sales while ignoring the fact this was released simultaneously for streaming really doesn't tell the full story.

You can get a rough idea by using Netflix’ impact value figure, the formula of which isn’t public but appears to be about seven times the number who watched at least two minutes of the title in the first month. (This is based on the leaked documents about Squid Game’s performance, and again, the real formula is surely more complicated. https://www.cnbc.com/2021/10/18/netflixs-squid-game-is-repor...)

Matrix was viewed about 3 million times in its opening week. Assuming it doubles that over the first month, that’d be 6M * 7 or an impact value of $42MM. If you want to be generous, multiply again by a number to account for HBO Max’s smaller size compared to Netflix, or to account for Max’s strategic importance to Warner. Either way, the contribution is significant but not enough to make Matrix 4 a hit relative to its budget.

What exactly is impact value? That article didn't explain it very well.

Impact value is an attempt to measure the title’s contribution to streaming revenue through signups and retention.

Do they suddenly make more money streaming? Do you have any evidence people joined a streaming platform to watch it?

This thing bombed everywhere. People with existing subscriptions watching it doesn't make it any. More profitable to Warner Bros

More money isn't just new subscriptions, it's also revenue from existing subscriptions (which can be cancelled any time).

By this logic, platforms will never need new content ever in order to keep existing subscribers happy.

It's not just new subscriptions, it's also retention: do people stay subscribed to platform X because movies like The Matrix Resurrections are on the platform?

It'd be rather hard to measure for a single film, it's the aggregate of platform content that dictates retention, I would think.

If the answer is yes, then the platforms will continue to pay companies like WB to film "box office bombs".

I watched the movie via HBO Max. I’m sure that on one set of calculations (HBO), a good chunk of my monthly fee is assigned to the Matrix Resurrections account. But on another set of calculations (Warner Bros), I’m a negative because I would have likely gone to see it in a theater.

Nevermind that they are the same company.

While I can't answer your question, just using a calculation like "box office receipts" - "movie making expense" is surely disingenuous. In that case every single direct-to-netflix release would be considered a money loser.

They had a deal for home streaming simultaneously with the box office release. This means that yes it is highly likely that far more people streamed this movie than movies that do theater-exclusive releases.

And people with existing subscriptions don’t matter, because Warner Bros isn’t getting subscription money directly, they’re getting money from deals with subscription services.

Edit: HBO is owned by Warner. So even if they don’t do accounting such that HBO pays Warner but just track subscription revenue directly, it still doesn’t matter. Retaining subscribers is hugely important, not just getting brand new subscriptions. It does make it a lot harder to compare box office receipts though.

The point isn’t that there are 2 revenue streams instead of 1, is that they own it forever and there will be unlimited ways to make money on it over a long enough timeline.

For a film, the present value of the unlimited future revenue is only a single digit multiple of its short term box office. Perhaps low doubles given the proportion of release attention accumulated on HBO Max.

I'm not sure the specific licensing agreement between HBO and Warner Bros, but it's likely they agreed upon a flat fee with additional $ per viewer. I don't think these deals would ever hinge solely on how many new subscribers joined the platform specifically to view that movie, which would be difficult to prove anyway.

From HBO's perspective, they also benefit from having a 'blockbuster' in their catalogue since it signals to potential subscribers that they're a platform you can expect to view high-budget movies.

HBO is owned by Warner

That doesn't mean that there isn't a contract between HBO and Warner Studios involved for this, as crazy as it sounds. It doesn't mean that there definitively is one, either -- but depending on how the different divisions are structured, HBO may well be paying Warner for the streaming rights.

My impression is that this sort of deal -- where the production arm may well shop around a product to different networks/services, even if the parent company actually owns one -- is becoming less common as nearly everyone's starting their own streaming service, but AFAIK it still happens, particularly for movies.

Anecdotally I did. Well for that and Dune - and I’ll probably keep it, I was surprised and impressed with the selection.

HBO Max is not a global service. There is a ton of money to be made selling the movie to other streaming services.

> wikipedia says the film cost $190m, which seems reasonable for a film like this

And you can add half of that again for the marketing budget.

I have always assumed those numbers are fudged, and included marketing.

I don't really know much about the industry, or what it take to make a film like this, but $100m is enough to pay 1000 people 100k. Did this film take that many people, that long to make?

I would imagine CGI is reducing a lot of expensive things (like blowing up aircraft, and expensive location shoots).

Yes. And the equipment. And the studio spaces. And the a-list actors/dir3ctors/producers who took home many millions each. 200million was once an insane budget (Waterworld) but with movies these day grossing into the billions (Endgame et al) 200mil is no longer a stretch.

Well, the total cost was reported as $190 million, so after the 1000 people get 100k, there is still 90mil to account for...

I'm probably not up with the times, but I don't really see many actors in that film that would be classed as A-list (although the definition of that is somewhat loose).

I really like Keanu, and he seems like a great guy, but I don't think he getting paid $20 million a film, although his popularity seems on the rise again (but perhaps that is just on Reddit). He was reportedly paid 2.5mil for some of the John Wick films, and you'd have to imagine he is the top paid in this latest matrix film.

Regardless, I have already said I don't know much about the industry, and I haven't even seen the film, so it is all just speculation on my end. However, I'm willing to bet that a significant percentage of the reported spend went to subsidiaries charging healthy margins, which is common in the industry to help cut into the % of profits the studio would have to share with people as part of their contracts.

Reeves was paid 10 to 14 million for this movie. That is base salary before other stuff, before his costs. So in terms of the budget, he alone is probably about 10% of the total cost to make this movie.

TV shows are really pushing things too. Twenty years ago, a big budget show was a premium cable production like Deadwood ($4.5M/episode) or Rome ($8.5M/episode), but now you have mainline shows like The Crown, Stranger Things, and The Mandalorian, all costing $12M+/episode.

And product placement and revenue generating content masquerading as entertainment content has shot through the roof, too.

My SO is a huge The Walking Dead nut. There was a couple seasons (episodes?) that (from the outside) looked more like a vehicle to sell cars (pun intended) than to advance the storyline.

'Memba new coke? Stranger Things did, too!

Sure, go watch ET - there's obvious product placement too - what was it, pizza hut? Pepsi? M&Ms? It's been a while, but it was rarely the McGuffin in the storyline.

Did ET want to call home or did ET use the latest 5g sprint network on ETs new Samsung Flip mobile, exclusively at Sprint stores, everywhere, to call home?

It's so transparent, and then to have the audacity to charge $30 to view this 90-minute product placement informercial.. and yet the masses gobble it up and it's just a feedback loop of "Well, it's working! Let's _double down_ next time!" <Queue the KFC commercial>

Quality CGI is certainly not free. Pixar movies are all CGI but are still quite expensive productions because it require a lot of work by many highly skilled professional.

Just take a look at the credits at the end of a blockbuster movie to see how many specialized skills are required.

Sure thing, I get that. There are around 1500 people listed as being involved in the making of the matrix resurrections. That is a lot of people. But I'd bet that the vast majority of them did not work on it full time, for over 6 months each:

From Wikipedia:

> Filming started in February 2020 but was halted the next month by the COVID-19 pandemic. Wachowski toyed with the possibility of shelving the project and leaving the film unfinished, but the cast insisted that she finish it. Filming resumed in August 2020, concluding three months later.

I am happy to admit I don't really know what I am talking about. All my info is either a quick google and some gut feelings around projects. Happy to be told otherwise by someone with experience in the industry, or with references.

https://en.m.wikipedia.org/wiki/The_Matrix_Resurrections

https://m.imdb.com/title/tt10838180/fullcredits

The largest crew is during "principal photography" which is when the live action scenes are filmed (i.e. involves actors on sets or location). This takes a few months for an average movie, longer for a complex shoot like the Matrix. It seem to have been four months according to the your quote. But the whole production takes a lot longer. Pre-production with storyboarding, planning, casting, set-design, costume design etc. starts a long time before filming. The Matrix was probably in pre-production for at least a year. And after principal photography we have post-production (editing, music, sound, color grading etc.). Traditionally CGI was applied in post-production, but todays blockbuster movies are basically CGI throughout with the live action scenes composited into the CGI. Post-production seem to have takes about a year for the Matrix.

In short, a lot of people work a long time on a movie on this scale. The credit roll are the names they have to mention due to contracts or union regulations, but a lot more are involved in various support functions or as sub-contractors.

And of course salary is not the only expense. You need soundstages, workshops, offices, administrative functions. Movie equipment is extremely expensive. Set building can be expensive - for Matrix Reloaded they literally built a two-mile stretch of highway in the middle of nowhere in order to film the car chase scene.

If you need on-location shoots, there is a lot of logistics involved. Transporting a large crew and equipment to some inconvenient location and establishing the necessary infrastructure.

Keep in mind that credits usually only list people that worked directly on the noticeable parts of a movie (actors, producers, graphics, audio, editing, cameras, marketing, hair/makeup, etc) but not those who work in the background to allow those people to do their work (IT, food services, electricians, janitors, truck drivers, crane operators, finance, hr, lawyers, etc).

It seems like it wasn't marketed very much: I didn't realize it was in production, about to be released, or... released. I just happened to see it online ready to watch one day and watched 2/3rds of it before giving up.

That's actually a pretty low marketing budget.

General practice amongst the box office geeks is to assume marketing is EQUAL to the production budget for a big blockbuster.

Yeah it seems they knew it was awful and just kind of dumped it out.

Sony said "come Wachowski's, we are going to make a new Matrix, with or without you." And then the dump truck showed up and she did what she could to, in her mind, make a product she was happy with that she knew she had to make for herself.

There's a lot of meta- to the film about the process, state of Hollywood, big cinema, giving in to retelling the same story for nostalgia bros, from what I understand. (I am not a critic or terribly deep, just observing)

I mean this clip speaks volumes. That unmistakable look of "Why'd you have to ask me that" as she is presumably self censoring thinking about what she /should/ be saying.

https://youtu.be/6mkNIs2XWZU?t=10

Warners intentionally released every 2021 film simultaneously on HBO Max in an attempt to drive subscriptions. It's likely impossible to attribute marginal subscriptions to a specific film on a service that offers thousands of them plus episodic television, but long run, if the service doesn't die and competes reasonably well with Disney+ and Netflix to drive up AT&T's market value for decades into the future, especially if other telecoms and ISPs start to dwindle in the face of disruption, it's worth it to lose accounting profit on a few specific wide releases for a year or two.

How much did HBO pay for the streaming rights?

I would have bought 3 tickets to this, but watched it on HBO instead.

> How much did HBO pay for the streaming rights?

They wouldn't -have paid- anything, HBO is owned by Warner too

edit: ...they wouldn't have to have paid anything..

No, they'd have paid exactly what they want to. If they want the movie to make no profit, they'll charge HBO nothing, or perhaps they'd have the gall to have _HBO charge the movie studio part of warner_ a fee for showing it on HBO, perhaps filing that away as 'marketing expenses' or some similar scam. Anybody with monkey points (entitled to a cut of the net earnings) is out of luck.

Conversely if they want it to be a windfall for some reason they charge HBO idiotic amounts of money for the distro rights, which HBO will happily pay because Warner tells them to do so.

That's exactly hollywood accounting.

I have no idea if it was actually 'done' to the matrix here.

> they'd have paid exactly what they want to.

sorry, yeah I agree, this is a better way of saying that

Oh very interesting! I wonder how that looks from an accounting/profitability perspective?

This reminds me of my dad’s story at work on time. He worked at a mill and the higher ups had a meeting with everyone. They said due to the high pricing of logs currently we are thinking we have to lay some guys off we didn’t want it to come as a surprise. My dad spoke up and said you own this division and the logging division. You set the price of the logs. You are telling us you charge yourself too much for logs and now we are going to lose work? There was union talk of a mill wide strike if they did it and they ended up not laying anyone off.

You know that game where you put a table-tennis ball under plastic cups and slide them around and you have to guess where the ball ends up?

That.

And that’s how you end up losing $100 million on paper.

yep. i watched it at least 3 times on hbo as well. easily would've bought a couple tickets.

same here

The long tail of box office receipts, especially internationally, is always interesting, as are licensing deals. Maybe they find a way to protect those with other subsidiaries.

Hollywood Accounting, as I understand it, entails having a separate production company for each movie. That company then buys services from the parent company, something like a franchisee. Some of those services may be inflated. All of the costs incurred by the production company will be paid off before anyone gets residuals.

There's also the matter of "marketing costs" which also help out the parent company.

So, of the $190 million that the movie cost, some of it was raised from WB, but some of it also went back to WB. From the outside it's really hard to say when they come out even.

You don't need Hollywood accounting when the expenses exceed the revenue, you can still pocket the revenue for yourself though. You can just stagger things across tax years.

Everyone should do themselves a favor and pay for a CPA firm (not just your friend that happens to be a CPA), learn some things just treat it as expensive education.

Its very different doing exploratory stuff with a CPA, compared to needing a CPA last minute for a problem you already have. They have excerpts from journals they are subscribed to that can inspire you about things you didnt know.

I think this is great advice, since the first few years of my tax career were spent helping people deal with all the crap that CPAs got them into.

CPAs are good at math and accounting and generally quite bad at reading and applying the law. Use a CPA for your tax filings, and use a tax lawyer for anything that involves complexity. Tax law is administrative law, so a lot of things that would apply to criminal law doesn't apply (for example, tax strategies can retroactively be deemed illegal, taxpayers can be penalized for violating the spirit of the rules despite adhering to the text of the rules, etc.).

Sort of, things can reverse on the administrative side especially when relying on private letter rulings!

I would say make enough money for appeals court!

How do you do this and how much does it cost?

I would say budget $3000 for beginners.

Bump that to at least $10,000 if you wind up putting down a retainer for a tax lawyer.

But CPAs are just as excited to research the same stuff and can give you the same answers, and their sign off on some activities can have some weight.

It gets easier to rationalize when you follow my simple mantra: do things worth litigating over.

Rules out lots of other ways to waste your time.

How do you find one that won’t get you into a huge costly mess with the irs?

I typically ask the CPA for supporting literature and case law if it exists

And gravitate towards the things that have durable consensus or more easily rationalizable consensus

But those kinds of requests during the first consultations make it pretty obvious if you want to work with them. If their whole business is just filing 1040-EZ’s for people with the standard deduction and collecting child tax credits, then they wont be prepared and you can rule them out.

What do you look for as their specialty? Is there a size of firm that you look for? Any key terms that you zero in on that would indicate that they do this type of work? Also how do you actually find a these ? Seems like a Google search won’t exactly bring up the right caliber folks.

You can also always take the time to _become_ a CPA. I've thought about it a few times.

...or take an intermediate position on buy vs build, and _marry_ a CPA. I've regretted it a few times, but on balance I'd recommend it.

> ...or take an intermediate position on buy vs build, and _marry_ a CPA. I've regretted it a few times, but on balance I'd recommend it.

Has the marriage concluded in divorce/death yet? Otherwise I'm not sure how much weight should be placed in that recommendation ;)

Are there generally accepted marriage principles??

If there's no profits, there's no need to pay out all of those agreed residuals that they negotiated.

"I get these occasional letters from Lucasfilm saying that we regret to inform you that as Return of the Jedi has never gone into profit, we've got nothing to send you."

https://www.slashfilm.com/503174/lucasfilm-tells-darth-vader...

Dumb question: how is Hollywood accounting not fraud? I know there have numerous civil court cases over differences of "opinion" over incentive compensation calculations, but has anyone actually gone to jail?

Hollywood accounting doesn't change whether there are profits, it changes who records the profits.

IP Holder the rights to a movie. Production Studio S to make the movie for a fee. Distributor D distributes the movie for a fee.

Most people think that Production Studio S is the company that records the profits from the movie, but they generally don't see anything beyond their costs associated with actually making the film. In the old days, Production Studio S also got saddled with all the costs associated with the movie, including distribution costs paid to the distributor; now this is usually only the case for independently financed movies. Naive talent and investors, or independent film investors, make their profit sharing agreements with Production Studio S.

IP Holder owns the rights to the movie, and generally is the one that records the profits to the movie. These days, this entity is rarely the same entity that made the movie, but for independent films, this entity is usually the same as the Production Studio S.

If Distributor owns IP Holder, they will usually put expenses into this entity instead of Production Studio S because...sophisticated talent and investors make their profit sharing agreements with IP Holder (and Production Studio S won't see much income, so that's a moot point). Distributor can suck out the profits by increasing the fee charged to IP Holder for distribution services, which includes marketing. IP Holder sees a lot of expenses, and it may take years (or over a decade) to record a profit, so the highest-tier talent and investors make gross point profit sharing agreements, meaning that their profit share is based on the movie's pre-expense earnings rather than on net (post-expense) earnings (but only the highest tier talent and investors get to do this, see e.g., Sandra Bullock and Gravity).

Note: when I was at a firm, my clients included both one of the big studios and a number of the smaller studios, so the above is a very simplified version of the accounting structuring.

Part of the problem is that many of the people with a stake in the “higher profits” camp risk losing future opportunities. If you start to make a ruckus about contract profits you find yourself not employed by that studio, and you start to be looked over by other studios. It’s a shell game but everyone agrees to it so as to book another gig.

The recent scuff-up between Scarlett Johannson and Disney was an example, and the rumors of Disney being unwilling and to work with her was the quod-pro-quo rearing it’s head.

What would you charge them with? They claim the costs for things like licensing and services are legitimate. How do you prove they aren't? What is the correct charge for a licence or service except for what two companies agree?

> We can add The Matrix Resurrections to that list, too, with the HBO Max hybrid barely scraping past $100 million globally since hitting the big screen and streaming on December 22, not ideal when the sci-fi actioner’s budget is estimated to be hovering around the $190 million mark.

Even with the fact that it was used to inspire people to sign for HBO max, I'm going to guess it's not a success if those two numbers are true. I don't know how much more legs it's got but rough rule of thumb is the films' grosses need to roughly double the film's budget to be a success.

Hollywood Accounting is absolutely a real thing but that doesn't mean that movies that cost hundreds of millions of dollars to make and promote don't routinely lose huge amounts of money when they bomb.