How Harry Potter Movies Technically Lost Money

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for 30 days at Welcome to Half as Interesting—we’re like
a Hogwarts class about weird Muggle facts taught by a less funny version of Fred and
George Weasley. If your boggart is outdated memes, you should
probably leave now, but if your Patronus is keyboard cat, you’re in the right place,
but here’s where the big reveal comes: this video isn’t really about Harry Potter stuff. It’s about accounting. First of all, goodbye everyone, but second
of all, we’re about to dive into how, despite having some of the highest box office grosses
in Hollywood history, some of the Harry Potter films technically lost money. Let’s start with some simple economics:
most people like having money, and most people don’t like giving money to other people. It’s a fact that some think is great, others
think is bad, but no one can dispute is true—kind of like how people feel about Dumbledore and
Grindelwald making out. With that in mind, let’s move on to another
economic concept: net profits. Simply put, net profits are what you get when
you take the money something makes and subtract the money that it costs to produce. So, if Brilliant pays me $100 to make an HAI
video, but it costs $40 to pay the security guard at my editor sweat shop, $30 to bribe
Susan Wojcicki to put the video on trending, and $20 to license the HAI initialism from
Helicopter Association International, I’ve turned a net profit of $10—just enough to
buy a banana. So now, let’s get into the accounting. A while back, movie stars decided that being
beautiful and famous and rich wasn’t enough for them—they wanted to be beautiful and
famous and very rich. They figured that the way to get very rich
was to negotiate into their contract not only a salary, but also a share of the movie’s
net profits. That way, if the movie made a lot of money,
the actor would get some of it, and for a while, this worked—but then the studios
realized that instead of giving the actors the money they wanted, they could just screw
them out of it. All they had to do was hire someone to lie
and cheat and steal—in other words, they had to hire accountants. Don’t worry, no accountants are watching
this video. It’s tax season, aka corporate slavery season. Here’s what those accountants did. They set things up so that each movie would
technically be made by its own little company, created specifically for that movie. So, when Warner Brothers made Harry Potter
and the Order of the Phoenix, they had their accountants create a shell company called
Harry Potter and the Order of the Phoenix, Inc, but for short, let’s called it HPATOOTPI…
okay actually no, let’s just call it Phoenix, Inc. Phoenix, Inc is who technically makes the
movie Harry Potter and the Order of the Phoenix, and if Phoenix, Inc were to make a net profit,
then anyone who is owed a portion of the film’s net profit would get paid. So, if Daniel Radcliffe had negotiated to
earn 1% of net profits, and Phoenix Inc made $100 million in net profits, Daniel Radcliffe
would earn $1 million—money he could use to avoid starring in movies where he plays
a corpse or has guns bolted to his hands—but the thing is, no matter how much money the
actual movie makes, Daniel Radcliffe will never get a cut of the profits, because Phoenix,
Inc will never make a profit, because it is designed specifically to lose money. Now of course, the company doesn’t actually
lose the money. They know exactly where it went—to the very
studio that created them. In this case, Warner Brothers. You see, to make sure it doesn’t make a
profit, Phoenix, Inc will pay Warner Brothers exorbitant fees for distributing and advertising
the film—no matter how much it actually costs to do those things. Here’s the actual balance sheet from Harry
Potter and the Order of the Phoenix. The movie grossed nearly $1 billion dollars—at
the time, it was the 6th highest grossing movie ever—but according to the balance
sheet, it lost $167 million dollars. So, where did that $1 billion go? Well, some of it went to the movie theaters,
some of it went to the cost of actually making the film, but the key to Hollywood accounting
lies here, in the costs of advertising, distribution, and interest. Phoenix, Inc paid the studio, Warner Brothers,
$212 million dollars to distribute the film, $130 million for advertising and publicity,
and another $57 million in interest, but remember, Warner Brothers created Phoenix, Inc, so they’re
paying all that money to themselves. By doing it this way, they ensure that Phoenix,
Inc overpays, and thus makes no profit, and thus, anyone who would have shared in Phoenix,
Inc’s net profits gets nothing either. It’s not just Harry Potter films that have
had their profits disappear like Neville Longbottom’s baby fat. In fact, according Edward Jay Epstein—author
of The Hollywood Economist and yet another Epstein who didn’t kill himself—nearly
every movie ever released has, on paper, lost money. In an interview in 2011, David Prowse—the
man who played Darth Vader in Star Wars: Return of the Jedi—said that he still gets letters
claiming he can’t be paid any residuals because the film hasn’t turned a profit,
despite the movie grossing $475 million on a $32 million budget. So remember, if someone offers you the net
profits of a movie instead of paying you upfront, tell them no. Meanwhile, if someone offers to speed up and
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100 thoughts on “How Harry Potter Movies Technically Lost Money

  1. how is this legal? Don't corporatedirectors have to act in the interest of the corporation, which means overpaying should be fraud?

  2. Maybe don’t negotiate net profits, but from the gross instead. You know, like how the real movie stars make money, not random replaceable actors.

  3. Those actors signed a stupid deal. If you can’t get your money up front, structure a revenue sharing agreement, not profit sharing since the actors have no control over expenses.

    Stay in school kids.

  4. Kind of like how multinational companies shift profits from their divisions in high tax countries to their divisions in low tax countries, such as by selling all their intellectual property for a dollar to the division in the lowest tax country, and then having all other divisions pay royalties on the IP to that division in the low tax country.

  5. HAI: Why Harry Potter movies lost money: They chartered a Boeing 767 for the Dragon in the final movie. The 767 is an expensive plane and needed to be shipped from Newark New Jersey…BLAH BLAH BLAH

  6. It is sad that this is also how the music industry works – labels usually force artists to pay exorbiant fees to rent studios that they own, even if the actual cost is nowhere near that high, just so that they can make more money…

  7. You'd think that sort of cheap trick would be illegal and reasonably easy to curb, but then you remember how lobbying works…

    The fat cat bribes politicians… sorry, I'm grossly mistaken. Off course, politicans never acept bribes. They only recieve totaly legitimate campaign contributions. So let me refrase:
    The fat cat campagin-contributes politicans into ensuring that relevant laws have more holes in them than a wooden ship serving as a swinger club for ship worms, so the fat cat can get away with not paying other folks…

  8. Hi, not an accountant but an accounting major. The "balance sheet" you showed at 3:24 is not actually a balance sheet but an income statement. In all its not a big deal but just thought I'd point it out.

  9. So your channel name is definitely true cuz I dont get half of you crappy puns
    (I'm just kidding, love you ❤)

  10. I'm an accountant who doesn't work with taxes. I am deeply offended about this. Daniel Radcliffe deserves the money more than Warner brothers 😂😂😂😂

  11. I will always remember a joke in Freakazoid where he was teaching a moron important lessons. "Demand a piece of the Gross profit, not net. The net is fantasy." To which the moron replied, "Daaagh , PIECE OF THE GROSS!"

  12. I have a question,
    Phoenix inc payee Warner bros some good amount of money to prevent themselves from paying taxes, but didn’t Warner bro’s pay tax on that amount?

  13. I want to like this video because it was interesting and taught me something new. But I don't want to like this video because it almost feels like I'm liking this horrible practice. lol

  14. Somebody should go on and lobby to require companies to pay those who work on movies a percentage of "gross profits." not net.

  15. I am still confused about 2 things.
    1. Actors know this probably.So why dont they take legal actions? Or why do they even enter these clauses if they know they wont get paid for loopholes.
    2. WB still has to pay taxes as they earned a lot from phoenix. How they evade taxes?

  16. They basically stealing from the net profit contract actors. I would sue them because they doing sneaky tactics to avoid paying them.

  17. Freakazoid warned you piece of the gross not the net. The net is fantasy. Even more funny it was on a WB contract.

  18. I just assumed it had to do with the fact that the producers poured a buttload of resources into details that NOBODY ENDED UP EVER SEEING.

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