Chapter 88: Unreliable Profit Sharing

Once any film's budget reached a certain threshold, a studio's review and investment processes became exceptionally cautious. While James Cameron's two masterpieces had truly kicked off Hollywood's era of hundred-million-dollar blockbusters, the massive budget Duke was demanding for Independence Day remained exceedingly rare.

Even small productions with budgets of just a few million dollars faced strict studio audits, let alone a project like Independence Day. Getting any film with a tens-of-millions price tag off the ground was an incredibly tedious process.

In Hollywood, taking a script from a mere concept to gaining a studio's approval and financing was called a "greenlight." Beyond the mandatory committee audits, it involved numerous preliminary investigations.

First, there had to be a script with enough quality and creativity to catch a studio's interest.

Second, the script had to pass a systematic review by the production department. They analyzed whether the story was original, whether it held commercial value, and whether it fit the studio's slate. If it passed, the department estimated production costs, tax liabilities, and other expenses.

Third, the project underwent a review by the distribution department. They teamed up with partnered distributors to investigate a host of questions: What was the film's commercial value? Who was the target audience? Was it an adaptation, and did it have an established fanbase? Could the film integrate into the studio's global distribution network? Would it receive support from partner television networks and Videotape collaborators? What were its genre and release window? Was there potential for product placement? Did the film have award potential? In the past and upcoming eighteen months, how many similar films had already been released or were in pre-production? How did they perform? And what was the expected return on investment?

Fourth, assembling the production team. For Independence Day, this was relatively simple.

Fifth, finalizing the shooting details and partnership agreements...

Sixth, the budget, shooting schedule, locations, and production team all received final approval, ultimately earning a "greenlight."

In truth, this was merely a broad overview; it couldn't capture the sheer intricacy of Hollywood's commercial laws. A few statistics, however, shed some light on the matter.

Every year, Hollywood studios received over 15,000 scripts, yet only about 300 films actually entered production—and there was no telling how many of those were projects that had been shelved for years.

Even with the success of Speed and The Rock serving as his capital, Warner Brothers and the other companies merely had more confidence in Duke. They would give priority to his projects, but they wouldn't greenlight them casually. After all, this involved an investment of over 100 million dollars.

"Warner Brothers and Twentieth Century Fox have already finished their initial audits."

Inside Duke Studio, Nancy Josephson sat across from Duke, lightly tapping the simple desk in front of her. "Their production, distribution, and marketing departments have tentatively given the project an A-grade evaluation. That, of course, is on the condition that the finished film achieves the effects described in the script."

"As long as the funding is sufficient, I don't think that will be difficult," Duke said.

Special effects simply could not be done on the cheap. Different price points yielded entirely different results. If the project passed smoothly, Duke's first choice for special effects would absolutely be Industrial Light and Magic!

"Have the trilateral talks taken place?" Duke asked.

"I've spoken with the management of Warner Brothers and Twentieth Century Fox three times already."

Nancy gently rubbed her forehead. Her face carried a trace of fatigue; the negotiations had likely drained a lot of her energy. "We have essentially reached an agreement to co-produce. If the project ultimately passes the audits at both companies, they will each shoulder half the investment. We've tentatively reached a consensus regarding distribution, too: Warner will handle the overseas release, and Twentieth Century Fox will take charge of the North American distribution."

Bringing in other companies to co-produce was the most common way to mitigate investment risks in massive productions. Warner Brothers and Twentieth Century Fox fought bitterly over the Summer Season, so the fact that they could sit down together and negotiate was proof enough of the standard mode of survival among Hollywood's major studios: competition and cooperation were eternal themes.

To put it bluntly, in the face of profit, no commercial conflict was irreconcilable.

"Nancy, Warner and Fox..."

Since the film had passed its preliminary audits, the likelihood of a greenlight was high. Duke asked the agent across from him, "Do they plan to finance it independently, or bring in outside investors?"

"They are already preparing to launch pre-sales. Once the project review finishes, they'll contact you immediately," Nancy said, leaning back in her high-backed chair, "to discuss the possibility of product placement in the film."

For a commercial film with an investment over a hundred million and a modern setting, avoiding product placement was simply impossible. Duke wasn't opposed to it either. Just as he had done with The Rock, he would do his best to arrange for the advertisements to appear at the right time and the right place.

"With pre-sales, there will definitely be a third-party guarantee." Duke sighed. In truth, no director liked the involvement of a third party; it meant more haggling and scrutiny.

However, Hollywood had a mature film system. The completion guarantee system was ostensibly the greatest protection for investors' interests. If the studio wanted to attract global distributors, Videotape partners, and television networks for advance sales, or publicly raise partial funds to support the shoot, a third-party guarantee was indispensable.

"Duke..." Nancy asked tentatively. "Do you not plan to invest?"

"My dear, I have to pay back my mother's loan, and my cut from The Rock won't hit my account for a few months at the earliest."

Spreading his hands, Duke looked rather helpless. He didn't overestimate Warner Brothers' goodwill; their agreement was to pay in full within half a year, and the studio would likely hold out until the very last moment. "I only have a million dollars on hand right now. Even if I could get a loan from the bank, it's far too little compared to the massive investment the film requires."

At this, the corners of Duke's mouth turned up slightly. "I believe I now have the capital to be making exorbitant demands of the producers, right?"

"Of course!" Nancy nodded without hesitation.

Put any other director in his shoes, and with two consecutive films grossing over 100 million in North America and over 300 million worldwide, they would have the capital for making exorbitant demands.

"Nancy, I want you to help me fight for a 1+2 salary contract!"

Just as Duke finished speaking, Nancy asked knowingly, "A 10-million-dollar base salary plus a twenty-percent share of the film's profits?"

"No, I don't want a net profit share." Duke shook his head and added, "I want a front-end box office share!"

To stimulate the creative desires of directors or actors, Hollywood allowed big-name directors and popular stars to take a cut of the box office and copyright revenues. Nowadays, the maximum profit-sharing ratio could reach twenty-five percent, and how much income and profit a director received was directly tied to the box office performance of their last three films.

This portion of the profit share could be divided into two main categories: front-end and back-end.

Front-end revenue mainly consisted of the film's box office cut, which was further divided into a percentage of the gross box office and a percentage of the net box office profits after deducting all costs. In this era, a film could still turn a profit at the box office; fast-forward a dozen years or so, however, and the latter would become a complete trap.

Back-end revenue included all ancillary income, such as copyrights. This area had always been a restricted zone guarded by distributors and studios. In all of Hollywood, only a handful of directors and actors were able to participate in it.

Take Spielberg, for example. If Jurassic Park—which currently maintained its scorching momentum—could sell as massively as it once had, he could reap at least 200 million dollars from the film's total revenue!

Duke's head had always been clear. He now had the qualifications to demand a front-end revenue share, but back-end was out of the question.

Of course, the negotiations definitely wouldn't be conducted quite like that. Nancy Josephson was highly experienced; she would know how to handle it.

This wasn't merely a consideration based on his own capital; there was another layer of reasoning. In this era where information didn't flow quite as freely, a film's global revenue was far harder to monitor than its box office statistics.

Take their current partner, Warner Brothers. In his past life, Duke had read a related report: although the film Harry Potter and the Order of the Phoenix had pulled in a total gross of over 700 million dollars in North America, on paper, it had lost nearly 200 million dollars!

The reason was that Warner Bros. Pictures had deducted up to 200 million dollars in 3D print and distribution fees—expenses paid to themselves—along with 140 million dollars in advertising and promotional fees, most of which were also paid to themselves. On top of that, there was 77 million dollars in interest, an expense generated by Warner Brothers borrowing from its left hand to pay its right.

Relying solely on these items, Warner Brothers had already reaped at least 400 million dollars in revenue. However, once these were deducted as expenses, along with another 200 million dollars in production costs and various other overheads, a massive deficit was generated from an accounting perspective.

Calculated this way, the key creators who had signed net profit-sharing agreements with the studio wouldn't receive much money at all.

Most importantly, from a financial and legal perspective, Warner Brothers hadn't committed any violations.

Therefore, taking all aspects into consideration, what Duke wanted was a percentage share of the gross box office, not an unreliable net profit share. Even in the future, he would never sign baffling net profit-sharing agreements with Hollywood studios!

If it weren't for his current lack of capital, Duke would have been tempted to demand a share of the film's total gross revenue right off the bat.

In the future, there would be even more Hollywood filmmakers still counting on the major studios to discover their conscience and let them take a slice of the "profits."

In reality, capital would never see the day it discovered a conscience.

After speaking with Nancy Josephson, Duke re-entered work mode. Not only did Sofia Coppola quickly return to her post as an assistant, but he also convened Zack Snyder, John Schwartzman, Robin Grand, and Joss William, along with other team members who had just finished their vacations, to conduct formal preparatory work for the upcoming Independence Day project.

Later, Nancy relayed the news that Paramount Pictures was interested in joining the investment, but they were jointly rejected by Warner Brothers and Twentieth Century Fox. The two companies completed their final audits at nearly the fastest speed permitted by their procedures. By the time September rolled around and Duke had led his team in drafting a rough script breakdown, Independence Day was finally ready to be greenlit.