The following post by Edward Jay Epstein, author of The Hollywood Economist: The Hidden Financial Reality Behind the Movies (available from Melville House, and reviewed in the Wall Street Journal here), is the 11th in a series of posts celebrating the publication of the book. You can also see Epstein in Oliver Stone’s forthcoming Wall Street 2: Money Never Sleeps wherein Epstein plays the head of the Fed …. Click here to read all posts in the series.

“STUDIO SHAME!,” shouts the headline on Nikki Fink’s Deadline website, “Even Harry Potter Pic Loses Money Because of Warner Bros’ Phony Baloney Net Profit Accounting.” To prove its point, it posted Warner Bros.; September 2009 distribution report for Harry Potter and The Order Of The Phoenix, then reported, as if it revealed some shameful scandal, that while the 2007 film “grossed $938.2 million worldwide,” it still remains over $167 million in the red.

The outpouring of indignation over movie studio accounting may resonate with a public concerned over corporate predatory practices but it misses the point that what is called Hollywood accounting is in reality a form of self-deception.

Every Hollywood production is a temporary collaboration between a studio and hundreds of independent contractors, which includes actors, directors, producers, writers, and technicians. The rules governing how each person will be paid is set forth in their contracts, which in most cases are negotiated and vetted by lawyers, agents, and financial advisers. In almost all cases, they get fixed compensation for their work, which is unaffected by whatever accounting ploys are used to determine the “net profits” and the value of “net points.” They accept the studio’s terms for a good reason, money: they want to be paid the fixed part of the fee and have an opportunity to be in the movie.

It is true that Harry Potter and The Order Of The Phoenix lost money on its theatrical run, but so do almost all Hollywood movies. Here is why. The reported box-office “gross” that so fascinates the media is what the theaters take in, not what the studios get. Of the $938.2 million worth of tickets sold for this Harry Potter sequel, Warner Bros.’ distribution arm got only $459.3 million. Out of that sum, it reimbursed itself the out-of-pocket cost it made to get this film, and an audience, in 7,000 theaters around the world. These cash expenses came to a staggering $182.6 million. They included $29.2 million paid to labs for the prints, $131.1 million paid to TV stations, newspapers and other media for ads, $8 million paid in taxes to foreign governments, $5.6 million paid to dubbing studios, and $3.5 million paid to UPS and others for shipping films abroad. What remained after these expenses was $276.7 million.

Since the negative cost for this Harry Potter film was $315.9 million (which included the payments to the author and other gross players), the film was in the red after its theatrical run. But so what? This was only initial harvest of money. The real profits in Hollywood come from harvesting the back-end, which includes the DVD market, Pay-TV (HBO), and TV network and cable licensing.

The reality is Harry Potter and The Order Of The Phoenix made money for everyone involved in it. For its part, Warner Bros. had a 30 percent distribution fee that it raked off the top of all revenues, with the exception of those from DVDs . In September 2009, even before most of the lucrative TV licensing revenue, it had earned $211.8 million. And DVDs were even a richer deal. After paying a 20 percent royalty into the account of the film, its video distribution arm got the other 80 percent. On $440 million of DVD sales and licensing, this amounted to $352 million. Even after paying the cost of manufacturing and warehousing the DVDs, and a percent to J.K. Rowling, who had a “100 percent” accounting clause in her contract, it was left with a bonanza of about $200 million.

The guilds and unions got paid. Their residuals on television licensing and DVD sales amounted to $10.2 million in 2009, and would rise as the film was released in TV markets over the next 30 years.

The gross players also get paid. They got a percent of the revenues, either from ” first dollar,” as was the case of J.K. Rowling, or when the film reached the “cash break-even” point defined in their contract.

And of course everyone else gets paid their agreed-upon fixed compensation. To be sure, some of them, including writers, actors, and producers, also were given “net points” which entitled them to a share of the net profit, if ever there are any, and, because of the way these profits are defined, they are unlikely to ever see money from their net points. But they were not duped. Their contract specified that their net profit horizon would recede further and further away as payment were made to the gross players, including Warner Bros., and with each semi-annual interest charge. So, on a film with a 30 percent distribution fee and gross players, these participants—and their agents—had no reason to expect any additional compensation from net points. What they got is bragging rights in a community in which ego satisfaction is the coin of the realm.

Edward Jay Epstein studied government at Cornell and Harvard, and received his Ph.D from Harvard in 1973. His master’s thesis on the search for political truth (Inquest: The Warren Commission and the Establishment of Truth) and his doctoral dissertation (News From Nowhere) were both published as books. He is also the author of The Big Picture: Money and Power in Hollywood.

Terry Gross

First off, apologies to all you Mississippi readers out there.  Not only did they cut your favorite radio program, but I’m sure you already get a lot of shit about your state.  So, sorry for what I’m about to do …

But according to reports coming out of aforementioned state, Mississippi Public Broadcasting has stopped broadcasting a show beloved of book publicists because it’s one of the very last places for long-form radio interviews of authors. Yes, they’re dropping WHYY’s nationally syndicated radio show “Fresh Air,” hosted by Terry Gross, as of Monday.

“Fresh Air” has been taken off the air before, but due to budget cuts.  Speculation this time around is inappropriate content.  And when I say “speculation,” I mean that the station has yet to publicly announce its reason for pulling the show, but the following internal email leaked online:

“MPB no longer airs this program [Fresh Air] due to recurring inappropriate content.” (dated July 12 2010 from Kevin Farrell, director of MPB radio)

While no further details have been released, many online commentators (including Gawker) have speculated that it might be because last weeks show focused on the movie “The Kids Are All Right,” starring Julianne Moore, Annette Bening, and (my personal favorite) Mark Ruffalo.  Why is this a problem?  Its about lesbian parents.  Oh no!!!! Run to the hills!!! The gays are coming for you!!!

COME ON MISSISSIPPI.  SERIOUSLY??

I’m not saying Terry Gross is my favorite radio host (I don’t want to play favorites since I am a book publicist and treat all NPR radio fairly), but Mississippi deserves a breath of fresh air (see what I did there? for more clever wordplay, check out my headline).

Eight good reasons to stay in Brooklyn

They ink a book deal.  Their very first official book deal.

Gym, Tanning, Laundry: The Official Jersey Shore Quote Book

That’s right, everyone’s favorite reality show will now have an accompanying quote book — a “TV tie-in” if you will.  You no longer need to search your brain for that guidette phrase that would perfectly describe the catastrophic situations you might find yourself in.  Rather, just reach into your back pocket and open to any page.

Well, I don’t know if it will be pocket-sized (but wouldn’t that be convenient!).  The publisher that inked the deal, Louise Burke of Gallery Books, justified the book’s relevance:

“You don’t have to live in New Jersey to love this show,” she said.  “Quoting this crew has become a national pastime.”

Oh no.

Peter Stone, author of Casino Jack and the United States of Money, is interviewed here in The Atlantic on the occasion of the release of Alex Gibney’s documentary of the same name about the Jack Abramoff lobbying scandal. Abramoff was the notorious Washington wheeler dealer who was convicted of fraud, corrupting public officials, and tax evasion. Stone serves as Washington Correspondent for the film, and his book is released by Melville House this month.

In The Atlantic interview Stone discusses the scandal and its aftermath, as well as his thoughts on the character of Jack Abramoff:

I’d had written about a number of interesting, important, and sometimes odd lobbying fights before, but as the Abramoff story began to unfold it struck me as a larger-than-life tale. Here was a lobbyist who was very, very powerful in Washington, a Republican lobbyist who obviously had good connections in the Congress with then Majority Leader Tom Delay of Texas and in the White House with Karl Rove and had come up though the conservative movement, through some of the most important organizations in the conservative world of the 1980s such as College Republicans.

Abramoff also had led had a very colorful life as well: before getting into lobbying in 1995 he’d had done a stint as a B movie producer with his anti-Communist tract, Red Scorpion which glorified a brutal Angolan rebel leader. He had close ties to big name conservatives like Ralph Reed and Grover Norquist going back to the early 1980s and he was an Orthodox Jew, all of which set him off from most lobbyists on K Street.

And some of the allegations against him were astounding, particularly that he and his covert partner, the former Tom DeLay aide Michael Scanlon, had bilked several of his Indian casino owning clients out of tens of millions of dollars…

Here Stone talks about the impact of the scandal on the politics that followed, and holds out the possibility of the hope of reforms:

The 2006 elections were influenced a good deal by the scandal, and the Democrats ran partly against the Republicans as a “culture of corruption.” And when they came in a number of reforms were enacted, although they were not as far-reaching as some members and watchdog groups would have liked. The reforms of 2007 did do away with the ability of lobbyists to buy meals and give gifts to members. And they put further curbs on travel and the ability of lobbyists to finance travel. They also instituted new requirements making earmarks more transparent.

But in some ways the biggest issue raised by the scandal is the negative impact that fundraising has, and the demand that is placed on lobbyists—among others but particularly on lobbyists—to help raise money for candidates. Demands for campaign cash have risen at Malthusian rates in recent years as the costs of campaigning have soared because of hugely expensive advertising.

That’s been a growing concern, and it was part of the scandal but nothing addressed it really in pure form. Many campaign finance reformers and members of Congress seem to be looking increasingly to public financing in congressional races as an option that might be viable now. There are over 125 House members who have signed cosponsoring legislation to do this. It could gain increasing traction in the next year or two. It’s not going to be an easy fight–there’s a lot of opposition to it, but it seems like an idea whose time may be finally coming.

Here is a sneak peak at the film:

Coming soon to a theater near you: Oscar-winner Alex Gibney’s documentary featuring the Melville House author Peter H. Stone, author of Casino Jack and the United States of Money. Here’s the trailer:

The road to the Red Carpet is never smooth. But now you can follow along, here, from the comfort of your own home, as filmaker/librarian Kacper Jarecki makes his first movie. The film is based on Melville House author Tao Lin’s first novel, Eeeee Eee Eeee.

See Kacper in his freshly rented film studio/apartment! Cheer along as he recruits his co-workers to star! Wonder at his boundless enthusiasm! And laugh, at the pitch perfect movie poster he’s cooked up!

Meanwhile, Tao Lin has also had his novella, Shoplifting From American Apparel (Melville House) optioned by Sangha Films, makers of The Human War, based on the book by Noah Cicero.

Could a Roman Polanski version of Lin’s up-coming novel, Richard Yates, about a love affair with an underaged girl, be far behind?

Former President -- and future convict? -- George W. Bush

A United Press International wire story reports Vincent Bugliosi’s book The Prosecution of George W. Bush for Murder has been made into a documentary film and is slated for US theatrical release this February, according to a release from NAFTC Studios.

Former prosecutor Bugliosi, author of blockbuster true-crime books such as Helter Skelter, And the Sea Will Tell, and Reclaiming History: The Assassination of President John F. Kennedy, among others, is known for his under-the-radar bestsellers. The Betrayal of America: How the Supreme Court Undermined the Constitution and Chose Our President from Nation Books was a national bestseller, though it received very little media attention.

Bugliosi stars in the documentary, which presents his tight legal case to put George W. Bush on trial in an American courtroom for the murder of nearly 4,000 American soldiers fighting the war in Iraq.

A trailer is available for viewing here.