Aliens: Problems with Alien profits blocking production.

leading from
Alien: Making the movie 
 and
Aliens: Making the movie
 

still collating

a) Confusion about profits
Alien cost between $9 and $11 million to make and by April 1980, the film had already made over £100 million at the box office.

This ought to have made them $89 million dollars profit, but for some reason, Fox's accountants revealed that the file had lost over $2 million for the studio since its 25th May 1979 release.

By August of 1980 after a number of industry accountants cried foul and demanded a recount, Fox changed its story and indicated that by that time the film had made $4 million in profit for the studio. 

Brandywine, the production company responsible for Alien thus sued Fox over the distribution of those profits, delaying the sequel that Brandywine was determined to make as quickly as possible.

b) Barrier blocking production
Fox kept with their story going by its financial report, Alien appeared to be a low earner, a money loser, and did not warrant a sequel.

As far as David Giler understood, Norman Levy, the then vice chairman at the studio wouldn't even hear about it, and thought it would be a disaster.

But whatever came out of Levy's mouth, he didn't personally recall having said something like that.

It was a movie a movie that he wanted to make, but he was concerned about the cost and whether or not Fox was in an economic position to take on a big-budget film like that

John Davis, 1986

c) Night Encounter at Kathy Gallagher's
Giler meanwhile was introduced to John Davis, (the son of Marvin Davis who had acquired Twentieth Century Fox in 1981), at a bar on night, Davis would recall that it was Kathy Gallagher's on Third Street in Los Angeles

Giler remembered asking him "When is your dad going to make the sequel?"

John Davis appeared to reply "Never. Norman Levy is going to save my father millions by not making that movie." but he didn't believe that the conversation about Aliens actually took place.

Inside the Kathy Gallagher restaurant with the owner and "Rusty" in 1983

d) Settlement
The lawsuit was settled by 1983 with Fox finally agreeing to fund an Alien sequel, and Brandywine could recoup some of the profits that it knew belonged to the company

In this case, it worked out brilliantly and Aliens would be made, making over $183 million against an $18 million budget

Source quotes
  1. Let’s take a look at another major studio. 20th Century Fox had just made boffo box office with Star Wars (1977) when one of the best, scariest and most profitable films of all time was released by the same company. It was called Alien (1979), it cost between $9 and $11 million to make and by April of 1980 the film had already made over $100 million at the box office. So, at worst that’s an $89 million profit for Fox, right? One would think. However, the Foxy accountants revealed that by this time the film had actually lost over $2 million for the studio since its 25 May 1979 release.
    Wow, 11 months of release and no profit (in spite of huge box office numbers)? How much longer could Alien possibly perform? Well by August of 1980 after a number of industry accountants cried foul and demanded a recount, Fox changed its story and indicated that by that time the film had made $4 million in profit for the studio. Yeah. Nobody believed that, either.
    Brandywine, the production company responsible for Alien thus sued Fox over the distribution of those profits, delaying the sequel that Brandywine was determined to make as quickly as possible. Fox, for its part, pointed back to its financial reports that indicated that Alien was, at best, a low earner and at worst, a money loser and thus, did not warrant a sequel.
    That lawsuit wasn’t settled until 1983 with Fox finally agreeing to fund an “Alien II” so that Brandywine could recoup some of the profits it knew belonged to it. In this case the bet worked out splendidly and that sequel, finally entitled Aliens (1986) made over $183 million against an $18 million budget and was also a huge critical success (matching the original) with awards nominations to back up that praise.
    While not all of that settlement has been disclosed to the media, the suit itself does give us a bit of a look into why this creative accounting takes place.
    Unlike as we have with Order of the Phoenix, we don’t have any ledger explaining just how Fox (allegedly) buried the profits from Alien but the question of “Why?” is easily answered by looking at the partnership itself. In the case of Alien, Brandywine acted as the production company with input from Fox, which acted as something of a co-studio. The producers were all Brandywine personnel like Gordon Carroll, David Giler and Walter Hill, but the production funds themselves came from Fox, which actually doubled the budget when it saw director Ridley Scott’s impressive story boards.
    The producers, writers, director, cast and crew all were paid from this budget, but the companies involved relied on the profits of the film. In any partnership of this kind, profits are divided in the contractual phase of pre-production with the funding party naturally taking the larger slice of the pie and the larger company (usually the same) handling distribution and accounting.
    For the sake of this argument, let’s pretend Brandywine agreed to 30 percent of the net profits (the total revenue minus total expenses) of Alien, while Fox agreed to accept the remaining 70 percent. Keep in mind that the aforementioned expenses include revenue sharing with the actual exhibitors (movie theaters that own the actual box offices) as well as shipping costs (FedEx, Buena Vista Distribution, Film Tracking are just a few possibilities) and the cost of printing the actual films to put in those shipping cans, it’s true that the costs can add up. That’s where large box office revenues tend to cancel out the expenses. True, the more screens a film lights up, the more money it costs to make the prints to display on those screens, but in general the increasing number of tickets sold greatly exceeds that cost.
    In today’s market the cost to make a (non-digital) movie print is around $1,500. Alien opened on 91 screens and pulled in $3.5 million on its opening weekend. Assuming the cost of prints was comparable at $1,500 each (including shipping costs), that’s around $136,500 in print costs, but each screen pulled in $38,767 in the opening weekend alone. That means that in one weekend, each print paid for itself over 25 times over and then continued exhibition for a year or more. Sure, printing and shipping movies does not constitute the only release cost of a film, but this example shows how quickly a film can pay for itself. Thus we are still looking at huge profits around 30 percent of which Brandywine was entitled to.
    But what if 20th Century Fox employed a little creative accounting to keep that 30 percent from being too high? As we learned from the Warner Bros. example, Fox could both “spend” and “save” these dollars by utilizing companies under the same umbrella and ultimately while it is true that on paper the expenses were paid for and chipped away from the net profits of the film, much of the money never actually left the Fox family of companies.

    In short, 30 percent of $100 million is $30 million, 30 percent of $4 million is $1.2 million and 30 percent of any negative number is still a negative number. If given the choice of what to fork over to someone else, which would you choose? Probably the same thing Fox chose. It’s the Hollywood equivalent of saying “Sorry, bro, I can’t give back that 20 bucks I owe you, I’m all tapped out!
    That is, of course, difficult to prove which is why such a lawsuit took so long to be settled (and still resulted in profits for Fox, thanks to the large successes of Aliens). Whether the books were ever opened or not (and they were not), it’s true that Brandywine ultimately won the suit (albeit with little substantial hit to Fox) and went on to make six more Alien films in partnership with the bigger company.

    This suit was finalized in the early ‘80s before News Corporation purchased 20th Century Fox, before there was a Fox Network, a Fox News Channel or a Fox Sports Net. Warner Bros.’ story is quite different. By the time of Order of the Phoenix’s 2007 release, Warner Bros. parent company owned half of the CW Network and all of HBO, Cartoon Network, CNN, TNT, TBS, HLN, Turner Classic Movies, Time Warner Cable, Warner Bros. Distributing Inc., Warner Home Video, DC Comics, Warner Interactive, Warner Bros. Music (and its subsidiaries), New Line Cinema and much more.
    (Hollywood Creative Accounting, or, How to Hide a Hit and Still Profit From It. http://www.popmatters.com/column/192246-hollywood-creative-accounting-or-how-to-hide-a-hit-and-still-profit-/)
  2. The box-office numbers are in, and for once the advance word--"the buzz"--was on the money.
    In its first five days, "Aliens" took in a healthy $13.4 million at 1,437 theaters. Seven years after Ridley Scott's space- noir classic "Alien" first arrived, "Aliens" looks like the runaway hit of the summer and may even surpass "Top Gun" when all the counting is done.
    But "Aliens" almost didn't make it to the screen.
    In an era when it seems as if half the current releases are sequels feeding off yesterday's fare, "Aliens" almost crashed and burned. At one point, 20th Century Fox, the studio releasing the film, nearly sold the rights to the sequel to the producers of "Rambo." During pre-production of "Aliens," director James Cameron and producer Gale Anne Hurd (Cameron's wife) quit over a long-running budget feud and their insistence on keeping Sigourney Weaver as the star.
    Today, the lines for "Aliens" snake around the block even for weekday mid-afternoon screenings. The line to take credit for making "Aliens" is only slightly shorter. If movie-making is a collaborative art, the story behind the making of "Aliens" offers classic evidence that the number of contributors increases exponentially with the success of a film.
    What follows is a kind of captain's log of the birth, near-death and ultimate triumph of a film that in hindsight looks like a project that couldn't miss. Clearly, there were those who thought just the opposite--that "Alien" (which has taken in more than $100 million in worldwide ticket sales to date) was some kind of cinematic freak and that audiences had seen enough of the slimy parasitic killer. Those naysayers are suddenly hard to find.
    Spring, 1983: Fox put the sequel into development after settling a protracted lawsuit brought by "Alien" producers David Giler, Gordon Carroll and Walter Hill over the disbursement of profits. The deal did not require the studio to release the film, just to put the project into development (paying a creative team to come up with a concept for the movie). While then-studio President Joe Wizan now says he endorsed the idea, several insiders say others were cool to it. "Norman Levy (then vice chairman at the studio) wouldn't even hear about it," Giler said. "He thought it would be a disaster."
    Levy, now a marketing consultant, denied he was against making "Aliens." "I don't recall ever saying that. It was a movie I wanted to make," he said. "I was concerned about the cost and whether or not we were in a posture to take on a big-budget film like that. It was a question of economics." ("Aliens" was eventually made for about $18.5 million, before expenses for prints and advertising.)
    But Giler insisted that Levy was strongly opposed. "I was introduced to John Davis at a bar one night, and I asked him, 'When is your dad (Marvin Davis, owner of the studio at the time) going to make the sequel?' He said, 'Never. Norman Levy is going to save my father millions by not making that movie.' "
    John Davis, now an independent producer at Fox, remembered meeting Giler (he named the bar as Kathy Gallagher's) but said he did not remember any conversation about "Aliens." "It's simply not a true story," he said.
    (LA Times,  July 24, 1986, 'Aliens': A Battle-scarred Trek Into Orbit by DAVID T. FRIENDLY)

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