The nation's accounting rule makers have tentatively approved new
financial reporting standards for the film industry that could cost
some Hollywood studios hundreds of millions of dollars.
For more than a decade, movie studios have been able to use the
current accounting rules to create their own special effects. Almost
like magic, the rules have allowed some studios to show profits even
when films flop. Often, they do this by postponing the recognition
of advertising or film production costs far into the future.
The new rules -- still subject to final approval from the
Financial Accounting Standards Board and from the American Institute
of Certified Public Accountants -- would have the biggest impact on
studios that have been most aggressive in their interpretations of
the accounting rules. Those studios include Columbia Pictures, which
is owned by Sony; Paramount Pictures, owned by Viacom; 20th Century
Fox, owned by News Corp., and Metro-Goldwyn-Mayer, owned by the
billionaire Kirk Kerkorian.
The rules would also apply to the producers of television shows,
but not to cable companies or broadcasters, which follow other rules.
Most companies would not have to adopt the new rules until 2000.
But David Londoner, an entertainment industry analyst at Schroder
Inc. and a member of the group that wrote the new rules, said he
expected many studios to begin following them next year.
The rules "will essentially place all film companies on an equal
footing," said Londoner, who has been pushing for the changes for a
decade. The present rules have frustrated analysts because one movie
studio cannot easily be compared with another and because the studios
have been able to use the accounting to accelerate revenues and delay
expenses -- practices not allowed in other industries.
"The suspicions about film accounting will finally be eliminated,"
Most studio executives said they could not yet comment in detail
about the proposed rules, which the Financial Accounting Standards
Board gave preliminary approval to on Friday. But some executives
disputed Londoner's estimates that the movie industry as a whole
would be forced to write off $2 billion and each major studio would
write off $150 million to $450 million when the new rules are in
"Any estimates of the impact are inaccurate, premature and very
speculative," a spokesman for Paramount Pictures said.
Now, movie studios, unlike almost all other businesses, can spend
millions of dollars on advertising and spread those costs over a
number of years, avoiding an immediate dent in their bottom lines.
The studios have been often able to argue that the films have useful
lives of many years, even if the movies bomb at box offices in the
United States. After all, they argue, foreign audiences are bound to
love the film and there is always money to be made selling home
videos or the syndication rights to television. …