by Mitch Kokai
Senior Political Analyst, John Locke Foundation
It’s rare when one can highlight the overwhelming awesomeness that is Spinal Tap, while at the same time making a point about public policy. So thanks, Bloomberg Businessweek!
Robert Kolker’s feature in the latest issue documents the efforts of Spinal Tap’s creators to recover some of the money they’ve lost over the years because of Hollywood’s questionable accounting.
It’s the accounting that also leads to the following public policy question: Does it make sense for North Carolina (or any other state) to hand out subsidies to an industry with this kind of financial track record?
By the terms of the contract they signed in 1982 with Embassy Pictures, the four creators of Spinal Tap are entitled to a portion of income from the film, including merchandise and music, provided certain benchmarks are hit. Given the wild afterlife of This Is Spinal Tap, it seems impossible that anyone with a piece of the movie hasn’t made money. And yet this is Hollywood, where studios have claimed that some of the highest-grossing films—hits such as Return of the Jedi, Harry Potter and the Goblet of Fire, and the Lord of the Rings trilogy—somehow haven’t turned a profit. As David Zucker, one of the creators of Airplane!, once said of his own sleeper hit, “It made so much money that the studio couldn’t hide it fast enough.” …
… One of the better-known axioms in Hollywood—let’s call it lesson No.?3—is that the majority of movies lose money. Unlike the other lessons, it’s impossible to tell whether this is true or just industry spin, meant to improve studios’ bargaining power. “All I can say is, I’m always amazed at the number of people who want to invest in the motion picture business,” Shearer says. “Nobody twisted Sony’s arm to say, ‘Hey, get out of the hardware business. Come make movies.’ They seem to know something.”
One well-known progenitor of the theory of Hollywood failure is Arthur De Vany. In a paper published in 2004, De Vany, now professor emeritus in economics at the University of California at Irvine, blamed pervasive reported losses on studio overhead, distribution charges, and any number of cost allocations that he had trouble precisely quantifying. The data available to him indicated that 78 percent of movies lose money—and just 6.3 percent of all movies earned 80 percent of Hollywood’s total profit over the previous decade. It’s research like this that explains studios’ efforts to persuade creators and talent to take as little as possible upfront in return for promise of payment later.
Do you think the people who were able to transform the Lord of the Rings trilogy into a money loser might be able to con the N.C. Department of Revenue? As you ponder that possibility, enjoy a little “Stonehenge.”