According to research by Global Media Intelligence and Merrill Lynch, back-end participation deals with top directors, producers and actors in Hollywood are the main reason the film industry has gone into an annual loss.
Back-end participation deals ensure that the above receive a percentage of a film’s gross, whatever its box office takings. The study examined releases in 2006 that cost $25.6bn to make but only grossed $23.7bn across all distribution platforms. The loss is partly attributed, according to the study, to a decline in foreign DVD sales, but mainly to the growth in back-end participations.
Reporting on the study, the New York Times commented that it was particularly relevant during the current Writers Guild of America (WGA) strike regarding residuals from DVDs and Internet downloads. The paper implies that these very residuals may already have gone to the industry’s top talent. (Source: Studio Briefing)