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                                Gump Accounting
                                       
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   Released last July, Paramount Pictures' "Forrest Gump" has grossed
   over $657 million at box offices around the world. That's not counting
   videocassette and sound-track revenues. It's before licensing fees on
   such products as "Forrest Gump" wristwatches, Ping-Pong paddles and
   cookbooks. Larry Gerbrandt, a senior analyst with Paul Kagan
   Associates, figures "Gump" could generate up to $350 million in cash
   flow for Paramount's parent, Viacom, Inc.
   
   But, believe it or not, the film lost money. That's right. By
   Hollywood standards it "lost" money, $62 million through Dec 31, 1994.
   
   How do you show a loss on one of the most profitable Hollywood
   properties of all time? You get yourself a Hollywood accountant.
   Here's what they cooked up for this movie through Dec. 31, according
   to a confidential net profit statement:
   
   After splitting the box office take with the theater owners, about
   50-50, Paramount received $191 million in gross Gump receipts. Right
   off the top Paramount keeps for itself something called a
   "distribution fee" equal to 32% of the gross. What exactly is this
   distribution fee? It's not really to cover the costs of getting the
   movie out and to the public. That's covered with a separate category
   called "distribution expense," which includes advertising, making
   prints, holding screenings, throwing a premiere party, transporting
   and storing film reels. Paramount claimed these expenses came to some
   $67 million.
   
   No, the "distribution fee" isn't for these things. It's just a
   rake-off by Paramount; almost pure profit. In this case, $61.6 million
   through the end of the year.
   
   Paramount tacked on another charge: an advertising "overhead" fee
   equal to 10% of the distribution expenses. Again, this is not an
   expense at all, just another way of siphoning off some profits.
   Another $6.7 million.
   
   Okay, add up all the "distribution" charges and they come to $135
   million. But so far we haven't allowed anything for the cost of making
   the damned thing. That was $112 million--"negative costs," the
   Hollywood bean counters call them.
   
   Does that sound like a lot of money to shoot a flick? Well, actor Tom
   Hanks and director Robert Zemeckis each got around $20 million of that
   $112 million (with more to come).
   
   Paramount got into the act here, too. Included in "negative costs" is
   $14.5 million for studio "overhead," a charge equal to 15% of the cost
   of making the film. And, of course, it wanted to be paid for the money
   tied up in making the film. That added a separate $6 million on
   "interest on negative costs." Pierce O'Donnell, the lawyer who
   represents humorist Art Buchwald in a similar dispute with Paramount,
   calls this "fictitious interest on money never borrowed."
   
   With this kind of bookkeeping, anyone can lose money. Sure enough,
   Paramount claimed Gump lost $62 million through year's end.
   
   Does anyone lose by this fanciful bookkeeping? Indeed. In the Forrest
   Gump case the losers include Winston Groom, who created the Forrest
   Gump character when he published his 1986 novel of the same name, and
   screenwriter Eric Roth. These two signed standard Hollywood contracts
   that promised them a percentage of Forrest Gump's net profits. Their
   mistake was that they didn't get to define what constituted "net."
   
   Performer Hanks and director Robert Zemeckis were wiser in the ways of
   filmtown. Their contracts guaranteed each of them an estimated 8% of
   Gump's gross receipts--receipts, not profits.
   
   In 1988, Art Buchwald sued Paramount, claiming the studio's 1988
   blockbuster "Coming to America" was Buchwald's idea and that he and
   his producer, Alain Bernheim, were entitled to 19% of the film's net
   profits. After the court agreed with Buchwald, Paramount announced
   that it owed Buchwald nothing because Coming to America had lost
   money.
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    pjf@cts.com