In the culture of celebrity gossip,
money remains the great taboo topic. Forbidden is any
question about the financial interest stars have in
movies they are promoting, from the size of their paycheck
to their participation in profits or the terms of their
contract. If television hosts don’t abide by this
tacit prohibition, they risk losing their access to
the audience-pleasing big-screen players (and possibly
their jobs). So celebrity interviews tend to be limited
to anecdotes about stars’ putative feats, hobbies,
and encounters with other celebrities.
If interviewers were not so restricted, the public might
not be so mystified by the economic realities of Hollywood.
Consider, for example, the demystification that might
emerge from an unrestricted interview with Governor
Arnold Schwarzenegger if he were to candidly answer
questions about the contract for his last movie, Terminator
3. Here is what he would say if he candidly described
the terms in his contract.
Q: Governor Schwarzenegger, is it true that the art
of the deal is now the true art of Hollywood??
A: My lawyer Jacob Bloom negotiated a very artful deal
for Terminator 3, especially since I was playing a robot...
1. Q. How much did you make?
A: That depends on whether you’re asking about
guaranteed or contingent compensation. The guaranteed
part is “play-or-pay,” of course.
A. I get paid whether or not the movie is actually made.
Q. So you get your salary whether you do the work or
A. It’s a beautiful business that way.
Q. How much was that guaranteed “pay-or-play”
Q. Plus bus fare...?
A. Actually, yes, the contract did include a perk package
to cover essentials. It provided a lump-sum payment
of $1.5 million for private jets, a fully equipped gym
trailer, three-bedroom deluxe suites on locations, round-the-clock
limousines, personal bodyguards--that sort of thing.
Q. So, let’s see--you made $30, 750,000 on this
A. Not including my contingent compensation.
Q. And what is that contingent on?
A. The movie reaching what is known as “cash break-even.”
According to my contract, once the movie reaches cash
break-even, I get a sum equal to 20 percent of the total
adjusted gross receipts from every market in the world--including
movie theaters, videos, DVDs, television licensing,
in-flight entertainment, game licensing, and so forth.
Q. But doesn’t Hollywood accounting famously use
smoke and mirrors to make sure movies never reach “break-even”?
A. Of course you hear about that happening to weaker
players and girly men, but my contract--thanks to my
lawyer, Jacob Bloom--is pretty tough. Take video and
DVD sales, for example. Under the standard Hollywood
contract, studios only credit the film with a video
“royalty” equal to 20 percent of the sales.
That means that if DVD sales total $20 million, only
$4 million of that is counted towards reaching the break-even
Q. And in your contract?
A. The royalty is calculated at 100 percent of total
video and DVD sales in determining my cash break-even.
So if $20 million worth of DVDs are sold by Warner Brothers,
$20 million is counted towards reaching the threshold
where I begin collecting my 20 percent.
Q. Of course, you have to depend on the studios to tell
you when that point is reached.
A. Not in my case. Jake Bloom--He is brilliant!--built
a clause into my contract that triggered my contingent
compensation once Daily Variety’s weekly box-office
chart showed either that the total domestic box-office
receipts had exceeded $155 million or that the world
gross had exceeded $380 million.
Q. And did they?
A. Yes, by December 2003, the world gross had reached
Q. Does this mean you were paid before all the other
participants whose “cash break-even” agreement
didn’t include a 100-percent royalty on home-video
A. Yes. In fact, since the payments to me were added
to the cost of the film, they effectively pushed those
other participants even further away from reaching their
break-even points. These things happen when you’re
you don't have power in Hollywood.
Q. But can't the distributors deduct expenses some of
their expenses, such as collection cost, check cashing
costs, dues and...
A. Yes, it is an "adjusted" gross. But in
my contract there are very strict caps placed on those
expenses. Most of these expenses are capped at $250,000.
So it amounts to petty cash.
Q. Now that your “break even” has been reached,
wont your 20% of every dollar received amount to a small
fortune-- especially with the money from world DVD and
TV licensing still coming in?
A. There are winners as well as losers in Hollywood
Q. How about personal tax on this money? Isn’t
there some withholding taxes in California...
A. They don’t apply. I am nor paid directly by
the studio. All the money due me is paid to Oak Productions,
Inc, which I own and control. Oak Productions, in return,
“lends” my services to the production. So
technically I don’t get any money personally from
the movie itself.
Q: Does using a corporate front minimize your taxes?
A. You might say it better manages my exposure to taxes.
For example, Oak Productions can-- and did-- enter into
a complex tax-reimbursement scheme with the production
to help me avoid additional tax liabilities that might
Q. In exchange for being so well compensated, did your
contract require you to give media interviews?
A. Absolutely. It’s not as though I make all this
money for doing nothing! My contract stipulated that
I had to make myself available for at least ten days,
seven of them abroad, for promotional activities in
coordination with the initial theatrical release of
the movie. This media work included everything from
television and radio appearances to appearances at premieres
and Internet chat rooms. But even if it were not part
of my contract, I had a pretty good incentive to shamelessly
promote Terminator 3 : my 20 percent of first-dollar
Q. Thank you, Governor Schwarzenegger, for being so
candid about money with our audience. They have been
in the dark too long.
A. It’s all right there in my contract.
How do studios make money?