‘Gump’ a Smash but Still in the Red, Paramount Says : Movies: Writer, who is due to get 3% of net profits, hires lawyer to question the studio’s accounting practices.

“Forrest Gump,” the Academy Award-winning movie starring Tom Hanks as a simple man who believed the best in people, has sold a staggering $661 million worth of tickets worldwide--the fourth-highest-grossing global release of all time.

So it was understandable that eyebrows would be raised when a confidential accounting of the movie by Paramount Pictures recently surfaced showing that “Gump” had not made a profit as of Dec. 31--even though by that date the film had raked in more than $350 million at the box office domestically and overseas.

Indeed, Paramount’s financial statement revealed that “Gump” was actually $62 million in the red.

Now, Winston Groom, the Alabama journalist-turned-author whose novel was the basis of the film, has hired a prominent attorney to seek answers from the studio. Under his deal, Groom was paid $350,000 upfront for the rights to his book and is to receive 3% of any net profits on the film.

“We’re meeting with Paramount very soon,” said attorney Pierce O’Donnell, who won a key court victory against Paramount on behalf of syndicated newspaper columnist Art Buchwald over the 1988 film “Coming to America.”

“Groom would like to work this out amicably,” O’Donnell said. “He believes strongly that this is an unfair method of accounting.”

Indeed, for some industry observers, the “Gump” accounting raises this question: Can a big movie ever make a net profit using Hollywood accounting practices?

Paramount executives declined to comment. But sources at the studio say they are stunned by Groom’s actions--and the suggestion that the studio is playing tricks with its accounting of “Gump” or has been unfair to net-profit participants.

The sources say that even though the film has yet to show a net profit, studio executives believe it eventually will. Paramount has already paid about $3 million to those who have net-profit positions on the movie--and Paramount even has offered a $250,000 check to Groom as a “gift.”

“They tried to give money to Winston,” said the source, who asked not to be identified. “I think he may not understand. All we are trying to do is give him $250,000 as an advance, no strings attached. We’re not trying to take money from anybody.”

Attorney O’Donnell said the payment “would be a way of buying him off and making him go away.” He said the amount was rejected because “he thought it was too light.”

O’Donnell said Groom happens to know Buchwald, and the two writers have been comparing notes about Paramount’s accounting practices--even though Buchwald’s case occurred during a prior regime, long before Viacom Inc. acquired the studio.

In Buchwald’s trial, which involved a breach-of-contract allegation, a judge held that Paramount’s net profit formula was “unconscionable.” Paramount has appealed the verdict.

At the time, O’Donnell said, Buchwald’s side had been informed by Paramount that even though “Coming to America” had grossed $160 million, it was unlikely to show a net profit. To which Buchwald quipped: “If Paramount keeps selling ‘Coming to America,’ they’re going to go broke.”

Reached Tuesday in Beverly Hills, where he is speaking at a dinner tonight, Buchwald said he and Groom have discussed the “Gump” accounting.

“I think Paramount, if they had any brains at all, would settle with him,” Buchwald said, adding that in Hollywood, net profits mean nothing.

“ ‘Forrest Gump’ is the best example of that,” Buchwald said. “Why would [Paramount] want to cheat Winston Groom out of 3% when it’s his story?”

O’Donnell said Groom was tarpon fishing Tuesday in Florida and unavailable for comment.

But while Groom is pondering where all the money is going, other net-profit participants are defending Paramount.

Steve Tisch, who co-produced the film, and Eric Roth, who wrote the screenplay, confirmed that Paramount has advanced them money against future profits--a clear sign that the studio eventually expects to turn a profit on the movie.

Tisch, who produced the movie with Wendy Finerman and Steve Starkey, said he wants to hold off criticizing anybody until additional revenues from “Gump” video sales, TV and merchandising kick in.

“If there isn’t a profit by [fall],” Tisch said, “then I think there is reason for concern. When I feel it is time to audit Paramount, I’m going to do it.

“I feel I’ve been treated extremely well by Paramount,” added Tisch, who deferred his producer’s fee of $250,000 to make the movie, sweetening his deal at the back end. Finerman declined to comment for this story.

Roth said Paramount had been generous to him, paying advances in addition to straight fees that he received to write the screenplay and make script revisions.

Some Hollywood sources point out that the break-even point for a typical movie is 2 1/2 to three times its cost, taking into account that a studio gets about 50% of the ticket price.

The gross profit is generally what the studio gets in film rentals, while net profits is what’s left after subtracting costs of making and selling the film. Those costs include marketing and print costs, promotion and a healthy dose of studio overhead and surcharges.

But critics of studio accounting methods say “Gump” provides further proof that net profits are rare, especially on big films with major stars.

“There is a greater chance that a writer will be struck by lightning than he will get any net profits in a high-budget movie with a big star and a big director,” O’Donnell said.

“In the Buchwald case, we showed the public that Hollywood accounting is a misnomer and that standard accounting practices are not used in net-profit accounting.”

In the case of “Gump,” Hanks, whose portrayal of the title character won an Oscar for best actor, and Robert Zemeckis, who won the Oscar for best director, will earn a percentage of the gross.

Sources say Hanks and Zemeckis each could make $30 million to $40 million off “Gump” because they enjoy “first-dollar” deals, sharing box office receipts that Paramount receives after the exhibitors have been paid.

The two men reportedly deferred much of their upfront pay (said to be $7 million for Hanks and $5 million for Zemeckis) in return for a percentage of the gross revenues. It was a gamble that paid off handsomely.

While Hanks and Zemeckis had the clout to command an “A-plus deal,” others involved in the movie, such as Tisch and Groom, have to wait in line.

But Groom already has benefited in other ways from the success of the film, a Paramount source said. The author sold only 9,000 copies of his novel when it first came out almost a decade ago. “After the movie, it sold 1.8 million in paperback and 36,000 in hardcover. And the studio took no money from a book of ‘Gumpisms,’ which was a studio idea.” A studio source said the second book sold 600,000 copies.

Paramount’s financial statement on “Gump,” which first surfaced in a Forbes magazine report this week, provides a rare glimpse of how a studio spends money to market and distribute a major film.

It reveals that by year’s end, Paramount had received $191 million from “Gump’s” foreign and domestic box office sales--after splitting about half of the revenues with exhibitors.

But then the normal studio practice of subtracting costs began.

The first thing it did was take $61.6 million (32%) off the top in “distribution fees,” the money spent to get the film into theaters.

“That distribution fee is a fee they pay themselves,” O’Donnell said. “It is an unchanging percentage of the gross.” The true cost of distributing a movie, he said, is probably no more than 10% of the gross.

“In the modern world of film distribution, studios use computers and a small number of employees, most of them in L.A., to market their films,” he said.

Next, Paramount deducted $73.5 million (38% of the studio’s initial share) in “distribution expenses.” That’s the cost of advertising and making thousands of prints of the film.

In the case of “Gump,” the studio says, it spent 1 1/2 times the cost of the movie itself to get people into the theaters. The studio also charged $6.2 million in interest payments on money it had spent to make the movie--a common practice at studios but one that O’Donnell calls a “hypothetical loan--it’s not a real loan.”

The movie cost about $50 million to make. O’Donnell said that $61.8 million covers the gross-percentage participants, Hanks and Zemeckis.

So, after all this has been subtracted, according to the confidential studio accounting statement, “Forrest Gump” showed a loss of $62,403,581.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

No Box of Chocolates

After collecting more than $350 million in box office receipts worldwide, the Academy Award-winning film “Forrest Gump,” starring Tom Hanks, had made no profit as the end of 1994, according to a confidential financial statement prepared by Paramount Pictures. According to the accounting, here’s where the money went. Worldwide receipts: $350 m. Theater owners worldwide: $159 m.* Paramount: $191 m. ***

RECEIPTS, in millions

$191.0 / Gross receipts received by Paramount after theater owners have taken their share, which is generally about 50% of total box office revenue.

***

OUTLAYS, in millions

$73.5 / Goes to Paramount to cover promotion, prints, advertising.

$62.0 / Goes to Paramount to cover the cost of distribution to theater owners.

$62.0 / Cover fees earned by Hanks and director Robert Zemeckis; this is so-called “first-dollar” gross, which only the top stars and directors can command.

$50.0 / Cost of making the picture, including story rights to the story, salaries, film and sets.

$6.0 / Interest charges paid on film’s financing.

***

$253.5 Total outlays

-191.0 Paramount’s gross receipts

-$62.5 Losses

* Estimate