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Film/TV Profit Participations
Examples of Mistakes Made in the Film/TV Industry
Review the boxes below to see a sample of how underpayment errors are made.
Non-Deductible Expenses
Studios sometimes incorrectly include costs as deductions that are not chargeable pursuant to the specific terms of the client's agreement. These errors can materially reduce the amounts that get reported to the profit participants.
Understatement of “Gross Receipts”
Studios can underreport Gross Receipts due to incomplete reporting of revenue streams, erroneously excluded periods, or exclusion of ancillary income (e.g., foreign, SVOD/AVOD, or merchandising). This directly lowers the receipts on which participations are calculated.
Incorrect Distribution Fees Charged
Studios or affiliated distributors may charge distribution fees that exceed contractual caps or apply those fees to revenue streams where the agreement does not permit them—such as certain third-party licenses. These practices reduce the pool of revenue that's available to participants.
Overstatement of "Distribution Costs & Expenses"
Overstated expenses, overhead, or charges from affiliated entities, artificially diminish reported profits.
Overstatement of production costs
Studios may allocate incorrect or unrelated costs to a project, including overhead or shared expenses. This increases the recoupment hurdle and delays profit participation payouts.
Overstatement of interest on production costs and overhead
Interest charges can be calculated using inflated rates or applied to costs that should not accrue interest. These practices will increase the studio’s recoupment position at the expense of participants.
Understatement of "Net Profits" and ultimate share due
When revenues are understated or costs overstated, the resulting net profit figure is artificially reduced. This leads to underpayment of the participant’s contractual share.
Statement Processing Errors
Participation statements may contain mistakes in data entry, coding, or application of contractual terms. Even small processing errors can compound over multiple reporting periods.
Mathematical and clerical errors
We frequently encounter basic arithmetic errors & incorrect formulas, which can distort reported participations. These errors often go unnoticed without a detailed audit review.