Chapter 30: Chapter 30: Dividing the Cake
For a movie of this era,a North American box office gross of $130.02 million can be considered an excellent result. However, this huge sum will not fall into the pocket of any individual or company. The cake will be shared across many parties, from theaters to distributors, and from producers to investors.
In the last few days of June, the accounting firm representing Duke and Mrs. Leah began close business dealings with 20th Century Fox and Lucasfilm, verifying countless accounts and profit shares.
Duke did not need to intervene; his presence would only complicate matters without providing any benefit. While PricewaterhouseCoopers' professional accountants charge a significant fee, their business ability and credibility are trustworthy.
Moreover, the lawyers representing Duke will oversee the entire process.
20th Century Fox signed the most standard revenue-sharing agreement with the theater operators. After deducting fixed expenses, they would share profits with the distributors based on different ratios during different periods of the film's release. After deducting taxes and other fees, 20th Century Fox received just over $62 million in revenue.
Lucasfilm had no authority over this portion of money. As the distributor, 20th Century Fox could take a 15% cut from the North American box office—$19.5 million!
After taking their distribution cut, Fox also needed to deduct expenses related to promotions and public relations. "Speed" produced over 5,100 copies, each priced around $600. Large-scale printing reduced the cost slightly, totaling $3 million. In addition, the costs for pre-screening PR, storage and transportation, fund recovery, hiring investigation companies, undercover checks on theater box office, and various promotional expenses amounted to $8.5 million.
Thus, 20th Century Fox would take an additional $11.5 million, meaning they would end up with half of the $62 million.
After subtracting the $11.5 million in expenses, the remaining $19.5 million was almost all Fox's gross profit.
The distribution company possesses vast promotional channels and powerful distribution capabilities. They have a reason to stand at the top of the industry. It's not easy for a Hollywood newcomer to reach the level of the six major or even second-tier distributors just by acquiring a distribution-rights company.
If that were the case, Lucasfilm wouldn't be so dependent on the distribution channels of 20th Century Fox and Paramount for projects like "Star Wars" and "Raiders of the Lost Ark." Was George Lucas short on money? Did he lack connections? Was he not capable enough?
If distribution issues were easy to resolve, Pixar and DreamWorks Animation wouldn't have been searching for distributors everywhere. The former faced restrictions under Disney, while the latter even considered selling itself to a distributor.
Once 20th Century Fox took their share, over $31 million remained. More than $1 million would be used to pay the remaining third of the actors' and crew's salaries and cover various industry association fees, including actors' guilds. Then, the money would flow into Lucasfilm's accounts. According to the agreement signed with Leah and other investors, Lucasfilm would certainly not choose the guaranteed minimum of $2 million but would first take 10% of the North American box office. They would take $13 million from this.
The remaining $17 million would be shared among the investors, including Duke. Mrs. Leah's $10 million accounted for two-thirds of the production costs, allowing her to take over $10 million. It seemed like a profit, but don't forget, taxes still had to be paid. After taxes, this amount would undoubtedly be a loss.
If investors pouring money into Hollywood looked at this situation, they would have reason to cry.
However, this is only part of the revenue from the North American box office. "Speed" could still obtain substantial income from other sources.
First are the North American television and video rights. Since 20th Century Fox has a 50% share, they led a negotiation team composed of Lucasfilm, Duke's agents, and others. Last year, Fox sold the surrounding rights to "Terminator 2" at a high price—$10 million for seven years of North American video rights and $7 million for television rights—indicating their experience in this area.
Duke also did not participate in the negotiations. He would have no say in the talks completely dominated by 20th Century Fox. His presence would not be helpful, and as the largest beneficiary, Fox would certainly want to sell at a high price.
After several rounds of back-and-forth negotiations, the North American video rights for "Speed" were sold for $7 million, and the television rights brought in $5 million, with 20th Century Fox taking $6 million from this.
Although Duke felt a bit jealous, he understood that this was Hollywood's rule. A newcomer cannot break the rules; otherwise, all of Hollywood would become their enemy.
Hollywood is not a place where making excellent films allows one to act with impunity.
Of course, as a director who has taken the first successful step, Duke would not miss the opportunity to fight for what he deserved.
In the conference room at the top of the Fox building, Duke sat on a chair, and as the morning passed, he hardly spoke, only watching Nancy Josephson as she debated with Fox's negotiators.
This was a negotiation regarding the overseas rights to "Speed," which began after the film finished its run in North America and had now reached the fifth round, yet both sides could not reach an agreement.
Since Lucasfilm had no share in the profits, George Lucas sent an executive president to show his support, while the lead in negotiations was given to Leah, the largest investor. Mrs. Leah then directly handed the responsibility to Duke, who naturally chose his new agent to act as the full representative.
"We're not negotiating for a crappy movie like 'Alien 3'!"
Standing up from his chair, Nancy paced around the conference room, almost shouting at Fox's negotiators from behind them. "This is 'Speed', Duke Rosenberg's 'Speed'! A blockbuster with over $130 million at the North American box office! You paid $65 million for the overseas rights to 'Terminator 2', and what was its North American box office?"
Nancy spoke quickly, not allowing the other side to interject. "Just over $200 million! 'Speed' is offering all overseas rights and sequel rights for $50 million! Is this price too high?"
After making her point, Nancy returned to her chair, switching to a tone that emphasized facts and reason. "With the upheaval in Eastern Europe and the dissolution of the Soviet Union, our film has a broader market now. Most Hollywood mainstream commercial films can earn more overseas than they do in North America…"
She spoke with the precision of a data analyst, citing several examples of Hollywood films that profited overseas. "Don't think 'Speed' will be an exception! This film is sure to make it into the top ten of the North American annual box office. If a film like this can't profit overseas, then Fox should give up on the overseas market."
She was a typical yet capable agent! This was Duke's evaluation of Nancy's work.
This sharp woman would never show a good face to anyone when it was time to be proud; when it came to humility, her thick skin could block the Mississippi River; when it was time to raise her voice, her voice could rival the roaring lion in Disney's Animal Kingdom; and when it was time to speak softly, she was gentler than a whisper.
Such a highly professional agent was exactly what Duke needed.
As long as there was no breaking of faces, Nancy could fight with Fox, and her presence allowed Duke to avoid direct contact with Fox on sensitive issues, providing a buffer between the two sides.
While $50 million was the packaged price for all rights, Duke was certainly not James Cameron, and Keanu Reeves was not Arnold Schwarzenegger; this price was unrealistic.
Of course, the $25 million offered by 20th Century Fox was equally unrealistic; it was clearly robbery!
After a long day of negotiations, both sides made some concessions. By the afternoon, they were almost arguing over a $10,000 base price, and finally reached an agreement. 20th Century Fox bought the overseas rights and sequel rights for "Speed" for a packaged price of $37 million.
The price was pushed down to this level partly due to Duke's insistence. He instructed Nancy to demand that 20th Century Fox pay this amount within a month, as Mrs. Leah's one-year mortgage would soon expire. If they didn't have the funds to repay by then, not only would they have to use Santa Fia's liquid assets, but they might even risk losing their house to the bank. At that point, the Rosenberg family would become the laughingstock of Los Angeles's upper class.
As for adopting a revenue-sharing model for overseas distribution with Fox, Duke had not seriously considered it. Not to mention the accounting issues with his mother, Lucasfilm had made it clear they would not participate. In his current lack of preparation, there was very little he could do to monitor Fox, and the distributor could easily inflate expenses, tax write-offs, and numerous other tactics. There are no limits to what they can do, especially regarding long-term revenue from video and television rights, where there are even more opportunities for manipulation.
Yes, there are various laws in the United States, but even in the strictly regulated North America, Hollywood giants dare to swindle Wall Street funds. Let alone in the overseas markets filled with opportunities for abuse.
This is not the era of seamless information flow as it will be in the future, making oversight much more difficult. Rather than relying on Fox's moral standards, it's better to sell the rights outright.
This approach was the consensus among all the film's investors.
In this way, the profits for the investors became clear and straightforward: $17 million from the North American box office surplus, $6 million from the remaining North American video and television rights, plus the $37 million just negotiated, totaling $60 million.
Duke was entitled to one-one-hundred-and-fiftieth of the profits, amounting to $400,000. Though he would still need to pay significant personal taxes, it was a solid return compared to the $100,000 director's fee he had rolled into his investment.
His mother was able to take home $40 million, and even after taxes, the return on a one-year investment was astonishing.
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