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  • Robert E Jensen

    "Netflix Drops Most Since 2004 After Losing 800,000 Customers," Business Week, October 25, 2011 ---
    http://www.businessweek.com/news/2011-10-25/netflix-drops-most-since-2004-after-losing-800-000-customers.html

    Jensen Comment
    This illustration (case?) offers quite a lot for class discussion or possibly even a term paper on the topic of CPV Analysis in cost/managerial Accounting courses. What should be the optimal price of a product that has a very high fixed cost and almost no variable cost, as is the case for online video downloads when the royalty costs are fixed?

    Variable royalty costs are quite another matter, and I really do not know how Netflix contracts with copyright holders.

    Also movie disk rentals are quite another matter since there are variable costs for postage, disk recording, disk purchase, disk handling, etc.

    What is interesting is the implication for CPV analysis of most any online product for which the variable cost is epsilon, including Kindle books, eTextbooks, etc.

    Remind students of what happens to pricing analysis and breakeven analysis when the contribution margin (p-v) approaches p.

  • Robert E Jensen

    A great teaching case for students learning about capital budgeting and rationing

    From The Wall Street Journal Accounting Weekly Review on June 24, 2011

    Ford Ramps Asian Car Plans
    by: Jeff Bennett
    Jun 17, 2011
    Click here to view the full article on WSJ.com
     

    TOPICS: Capital Budgeting, Capital Spending, Cost Management, Product strategy, Revenue Forecast

    SUMMARY: "Ford Motor Co. believes it can earn a 'competitive return' in China and India even as it rolls out string of new cars in those markets that will sell for much lower prices than the vehicles it sells in North America and Europe."

    CLASSROOM APPLICATION: The article is excellent for use in managerial accounting classes to discuss planned production in support of sales strategy and the particular need for target costing in this situation.

    QUESTIONS: 
    1. (Introductory) Why is Ford focusing on its planned auto sales in Asia and India?

    2. (Advanced) What is target costing? Why is that strategy particularly important in Ford's growth strategy described in this article?

    3. (Advanced) What other factors must the company consider as it designs "from the ground up" models for China and India "to sell at low prices"?

    4. (Advanced) Summarize Ford's production capacity issues in the Asia-Pacific region. How do these issues contribute to difficulties in planning production and estimating product costs?
     

    Reviewed By: Judy Beckman, University of Rhode Island

     

    "Ford Ramps Asian Car Plans," by: Jeff Bennett, The Wall Street Journal, June 17, 2011 ---
    http://online.wsj.com/article/SB10001424052702304186404576390024237701428.html?mod=djem_jiewr_AC_domainid

    Ford Motor Co. believes it can earn a "competitive return" in China and India even as it rolls out a string of new cars in those markets that will sell for much lower prices than the vehicles it sells in North America and Europe.

    Over the next four years, Ford plans to expand to 15 from five the number of vehicles it sells in China. Some of the new cars will sell for less than $14,500, Ford's Asia Pacific and Africa President Joe Hinrichs said on Thursday. In India, Ford will sell eight models, up from three, with some selling for under $8,500 like its Figo subcompact, he said.

    Auto makers often find it difficult to make money on small, inexpensive cars because of it can cost hundreds of millions of dollars to develop a new model from the ground up.

    But Mr. Hinrichs said Ford is confident it can profitably sell low-cost cars in China and India by sharing the basic designs with other Ford units around the world, increasing the company's economies of scale. "We are making money there now and we can continue to," Mr. Hinrichs said at Ford's Dearborn, Mich., headquarters. "It's all about the scale and the cost base."

    Ford last week set a goal of increasing its global automotive sales by 50%, to eight million vehicles a year by 2020, with the bulk of the gain coming from the Asia-Pacific region. During the same period, the company also hopes to improve global automotive operating margins to about 9% from 6.1% last year.

    Mr. Hinrichs said Ford needs to develop new models that sell at low prices to be able to expand rapidly in Asia. Vehicles with sticker prices below $14,500 make up about 70% of the market in China, and while those under $8,500 account for 70% of the Indian market, according to Ford. Ford's best-selling vehicle in China today costs about $16,500; in India, its top seller costs about $7,600.

    Brian Johnson, an automotive analyst at Barclays Capital, said it will be a challenge for Ford. "If Ford can leverage the global engineering and the locally-tailored content to produce a cheap, but reliable product, then there is room for them to succeed," he said.

    Local Chinese and Indian auto makers "don't have the global scale" that Ford can leverage, while some other western car companies are not yet moving quickly into low-cost cars, he added. Tata Motors made a splash in India in 2009 when it began selling its small Nano car for about $2,500 although the vehicle ran into some problems when a faulty switch led to fires in three cars.

    Mr. Hinrichs took over Ford's Asia-Pacific region in late 2009 and was given the additional duties as China chief executive last year. Ford expects 45% of the global industry automotive sales to come from Asia-Pacific by 2020, dwarfing the more mature Americas market's 25%.

    Last year, Ford began building the $7,600 Figo at a plant in Chennai, India. It developed the car by starting with an older version of the Fiesta originally designed for the European market. Ford modified the vehicle and stripped out about $1,000 in cost to sell it at a much lower price in India, Mr. Hinrichs said.

    Ford's forthcoming models for China and India will be designed from the ground up to sell at low prices, Mr. Hinrichs said.

    One hurdle facing Ford in Asia is production capacity. Demand is outstripping supply despite $3.4 billion in plant construction or expansions projects that Ford has announced in China, India, Thailand and Africa.

    Construction on one of those new investments, an engine plant in Chongqing. China, began on Thursday. When open in 2013, the $500 million plant will enable the Changan Ford Mazda Automobile joint venture to double its output to 750,000 engines a year.

    Continued in article

    Bob Jensen's threads on managerial accounting are at
    http://www.trinity.edu/rjensen/Theory02.htm#ManagementAccounting

    For capital budgeting and valuation, also see
    http://www.trinity.edu/rjensen/roi.htm

     

  • Robert E Jensen

    Innovative Corporate Performance Management: Five Key Principles to Accelerate Results
    by Bob Paladino
    ISBN: 978-0-470-62773-0 Hardcover 415 pages November 2010|
    Amazon has it priced for under $37 new and $23 used
    http://www.wiley.com/WileyCDA/WileyTitle/productCd-0470627735.html

    Jensen Comment
    This is a bit too much Harvard Business School-like for me, but it does cover much of what we teach in managerial accounting.

    There seem to be a dearth of reviews of this book. I don't know why?

    April 19, 2011 reply from Jim Martin

    Performance management seems to be a relatively new catch-all term like
    cost management, activity-based management etc. I have been following this
    concept, or catch-all term for a while. I suspect most of the book can be
    found in Paladino's earlier and most recent works mainly in Strategic
    Finance.

    Paladino, B. 2007. Five Key Principles of Corporate Performance
    Management. John Wiley and Sons.

    Paladino, B. 2007. Five key principles of corporate performance
    management. Strategic Finance (June): 39-45.

    Paladino, B. 2007. Five key principles of corporate performance
    management. Strategic Finance (July): 33-41.

    Paladino, B. 2007. Five key principles of corporate performance
    management. Strategic Finance (August): 39-45.

    Paladino, B. 2008. Strategically managing risk in today's perilous
    markets. Strategic Finance (November): 26-33.

    Paladino, B. 2010. Innovative Corporate Performance Management: Five Key
    Principles to Accelerate Results. John Wiley and Sons.

    Paladino, B. 2011. Achieving innovative corporate performance management.
    Strategic Finance (March): 43-51.

    Paladino, B. 2011. Achieving innovative corporate performance management.
    Strategic Finance (April): 43-53.

  • Robert E Jensen

    A course illustration of ethics and questionable uses of misleading cost accounting

    "Colleges Spend Far Less on Educating Students Than They Claim, Report Says," by Robin Wilson, Chronicle of Higher Education, April 7, 2011 ---
    http://chronicle.com/article/Colleges-Spend-Far-Less-on/127040/

    While universities routinely maintain that it costs them more to educate students than what students pay, a new report says exactly the opposite is true.

    The report was released today by the Center for College Affordability and Productivity, which is directed by Richard K. Vedder, an economist who is also an adjunct scholar at the American Enterprise Institute and a Chronicle blogger. It says student tuition payments actually subsidize university spending on things that are unrelated to classroom instruction, like research, and that universities unfairly inflate the stated cost of providing an education by counting unrelated spending into the mix of what it costs them to educate students.

    "The authors find that many colleges and universities are paid more to provide an education than they spend providing one," says a news release on the report, "Who Subsidizes Whom?"

    The report's authors used data from the U.S. Education Department's Integrated Postsecondary Education Data System, or Ipeds, to conclude that more than half of students attend institutions that take in more per student in tuition payments than what it actually costs them to deliver an education.

    The chief reason universities inflate the figures on what they spend to educate students, says the report, is that institutions include all of their spending—whether it is directly related to instruction or not—when calculating what it costs them to provide an education. In reality, says the report, depending on the type of institution, it can cost universities much less to educate students than what the institutions bring in through tuition charges.

    "This study finds that education and related spending is only a portion of many institutions' budgets," says a news release on the study, "and that many schools spend large amounts on things unrelated to educating students."

    The report uses Dartmouth College as a poster child to illustrate the gap between the actual costs of providing an education and what an institution says it spends. On its Web site, the report says, the Dartmouth College Fund maintained that while the institution charged undergraduates about $50,000 each in academic 2009-10, the college actually spent about $104,400 per student. While the center's report notes that Dartmouth indeed spent more over all per student than what it took in through tuition payments, "this does not mean that students are being subsidized because not all of that spending is used toward specifically educational purposes."

    For example, says the report, Dartmouth said it spent $37,000 per student on "academic support," $24,000 per student for research, $15,000 for "institutional support," and $12,000 for "student services." But, says the report, "very little of that $88,000 is properly attributed to the cost of providing an education."

    A spokesman for Dartmouth said it is legitimate for institutions to count research expenditures as part of instruction. Dartmouth faculty members are "renowned as teacher-scholars who involve their students in their scholarship," said the spokesman. "Discovery of knowledge is a key part of Dartmouth’s fundamental mission and a liberal-arts education."

    The report criticizes colleges for stating that they subsidize their students' education, saying "conventional wisdom is often wrong" in that regard.

    Continued in article

    Bob Jensen's threads on cost accounting are at
    http://www.trinity.edu/rjensen/Theory02.htm#ManagementAccounting

  • Robert E Jensen

    This Could Make an Interesting Managerial/Cost Accounting Case (CVP Analysis in the Real World)

    "How Travelers Could Lose in American's Web Ticket War," by Kayla Webly, Time Magazine, January 6, 2010 ---
    http://www.stumbleupon.com/su/1xBg8J/www.time.com/time/business/article/0,8599,2040936,00.html
    Thank you Robert Harris for the heads up.

    An ongoing battle between American Airlines and online travel agents Orbitz and Expedia has played out for weeks with more fervor, unlikely alliances and backstabbing than the last season of The Apprentice. When American and Orbitz failed to reach terms on a new distribution agreement, the airline ordered its schedule dropped from the popular travel website on Dec. 21. Just a few days later, pre-empting its own distribution dispute, Expedia hid American's listings from its search results, making it difficult but not impossible to book an AA flight on the website. Then, once Expedia's agreement with American ended Dec. 31, it dropped the carrier from the site, calling the airline's strategy "anti-consumer and anti-choice."

    There's no question that part of American's motivation is to cut costs, which George Hobica, founder of Airfare Watchdog, says the airline is "desperate" to do. In bypassing the online travel agents, American saves on distribution costs, but can also raise its ticket prices more easily, since its fares won't be displayed directly beside those of its competitors. (See the top 10 travel moments of 2010.)

    An ongoing battle between American Airlines and online travel agents Orbitz and Expedia has played out for weeks with more fervor, unlikely alliances and backstabbing than the last season of The Apprentice. When American and Orbitz failed to reach terms on a new distribution agreement, the airline ordered its schedule dropped from the popular travel website on Dec. 21. Just a few days later, pre-empting its own distribution dispute, Expedia hid American's listings from its search results, making it difficult but not impossible to book an AA flight on the website. Then, once Expedia's agreement with American ended Dec. 31, it dropped the carrier from the site, calling the airline's strategy "anti-consumer and anti-choice."

    There's no question that part of American's motivation is to cut costs, which George Hobica, founder of Airfare Watchdog, says the airline is "desperate" to do. In bypassing the online travel agents, American saves on distribution costs, but can also raise its ticket prices more easily, since its fares won't be displayed directly beside those of its competitors. (See the top 10 travel moments of 2010.)

    Continued in article

    Bob Jensen's threads on management accounting ---
    http://www.trinity.edu/rjensen/Theory02.htm#ManagementAccounting

  • Robert E Jensen

    Teaching Case on Supply Chains and Value Chains

    Not Really 'Made in China'
    by: Andrew Batson
    Dec 16, 2010
    Click here to view the full article on WSJ.com
     

    TOPICS: Product strategy, Supply Chains

    SUMMARY: "One widely touted solution for current U.S. economic woes is for America to produce more of the high-tech gadgets that the rest of the world craves. Yet two academic researchers have found that Apple Inc.'s iPhone-one of the most iconic U.S. technology products-actually added $1.9 billion to the U.S. trade deficit with China last year. How is this possible? Though the iPhone is entirely designed and owned by a U.S. company, and is made largely of parts produced by other countries, it is physically assembled in China. Both countries' trade statistics therefore consider the iPhone a Chinese export to the U.S. So a U.S. consumer who buys what is often considered an American product will add to the U.S. trade deficit with China."

    CLASSROOM APPLICATION: The article is useful in a managerial accounting class or an MBA class. Questions ask students to discuss the concepts of product cost, period cost, value chains, and supply chains, then consider the impact of these accounting concepts as they are used in discussing issues in the world economy.

    QUESTIONS: 
    1. (Advanced) What are the three cost components of any product?

    2. (Advanced) What other period costs also contribute to production of any product such as the iPhone and the iPad discussed in this article?

    3. (Introductory) What component of the iPhone and iPad product costs and period costs are incurred in China? In the U.S.? In other parts of the world?

    4. (Advanced) What is a value chain? How do both product costs and period costs reflect amounts in the value chain for a product?

    5. (Advanced) What is a supply chain? How is the functioning of today's global supply chain impacting the statistics traditionally used to assess international trade?

    6. (Introductory) How do the researchers cited in the article use the components of a value chain to improve analysis of global supply chains?

    "Not Really 'Made in China'," by: Andrew Batson, The Wall Street Journal, December 16, 2010 ---
    http://online.wsj.com/article/SB10001424052748704828104576021142902413796.html?mod=djem_jiewr_AC_domainid

    One widely touted solution for current U.S. economic woes is for America to come up with more of the high-tech gadgets that the rest of the world craves.

    Yet two academic researchers estimate that Apple Inc.'s iPhone—one of the best-selling U.S. technology products—actually added $1.9 billion to the U.S. trade deficit with China last year.

    How is this possible? The researchers say traditional ways of measuring global trade produce the number but fail to reflect the complexities of global commerce where the design, manufacturing and assembly of products often involve several countries.

    "A distorted picture" is the result, they say, one that exaggerates trade imbalances between nations.

    Trade statistics in both countries consider the iPhone a Chinese export to the U.S., even though it is entirely designed and owned by a U.S. company, and is made largely of parts produced in several Asian and European countries. China's contribution is the last step—assembling and shipping the phones.

    So the entire $178.96 estimated wholesale cost of the shipped phone is credited to China, even though the value of the work performed by the Chinese workers at Hon Hai Precision Industry Co. accounts for just 3.6%, or $6.50, of the total, the researchers calculated in a report published this month.

    A spokeswoman for Apple said the company declined to comment on the research.

    The result is that according to official statistics, "even high-tech products invented by U.S. companies will not increase U.S. exports," write Yuqing Xing and Neal Detert, two researchers at the Asian Development Bank Institute, a think tank in Tokyo, in their report.

    This isn't a problem with high-tech products, but with how exports and imports are measured, they say.

    The research adds to a growing debate about traditional trade statistics that could have real-world consequences. Conventional trade figures are the basis for political battles waging in Washington and Brussels over what to do about China's currency policies and its allegedly unfair trading practices.

    "What we call 'Made in China' is indeed assembled in China, but what makes up the commercial value of the product comes from the numerous countries," Pascal Lamy, the director-general of the World Trade Organization, said in a speech in October. "The concept of country of origin for manufactured goods has gradually become obsolete."

    Mr. Lamy said if trade statistics were adjusted to reflect the actual value contributed to a product by different countries, the size of the U.S. trade deficit with China—$226.88 billion, according to U.S. figures—would be cut in half.

    To correct for that bias is difficult because it requires detailed knowledge of how products are put together.

    Continued in article

    Bob Jensen's threads on managerial accounting are at
    http://www.trinity.edu/rjensen/Theory02.htm#ManagementAccounting

  • Robert E Jensen

    Is hiring a stalker cheaper than paying rent?
    "There Oughta Be a Law: Californians Getting 725 New Ones in 2011," by Hoa Patch, LaMesa Patch, December 31, 2011 ---
    http://lamesa.patch.com/articles/there-outta-be-a-law-californians-getting-725-new-ones-in-2011

    Jensen Comment
    Are you tired of the same old "Make versus Buy" or "Buy versus Rent" cases in your managerial and cost accounting courses? Spice up your teaching with the new "Stalk versus Pay" house rental cases from California. Assume that long-term stalkers are plentiful for a fee. Determine the breakeven point where you become indifferent between paying a stalker versus paying your landlord.

    What if a company leasing the tallest building in Los Angeles is being stalked by Carl Icahn? Can the company stop paying rent until Carl Icahn agrees to leave the lessee alone --- http://en.wikipedia.org/wiki/Carl_Icahn

    I think David Albrecht should adapt a new variation of his use of Parker Bros. Monopoly board game when teaching accounting. If you land on luxurious Park Place or Boardwalk, with each having four very expensive rental houses, you should have a chance to get out of paying rent with a "Hired a Stalker" card from the Community Chest.

    You might even hang your stalkers by the fireplace on Christmas eve. Moms should make a point of buying stalker stuffers for each stalker hung by the chimney with care.

    Additional Comment
    AB 1871 allows people to lease out their cars when they are not being used—alleviating the need to purchase additional insurance. Can your teenage son, who caused four deaths in three separate accidents in which he was convicted of drunk driving, get a better deal on insurance by leasing a car from his parents instead of borrowing a car from them?

    Here's another managerial and cost accounting project for students.
    When is it cheaper for a sixteen year old driver to lease a his grandpa's car rather than take out insurance on his own new car?
    Does your answer vary whether the teenager lives in New York versus Wyoming when he's contemplating renting Grandpa's car in Yuba City, California.

    Additional Comment
    Here's another project for accounting students. Since insurance companies can no longer differentiate teenage driver car insurance fees on the basis of gender of the teenager, will teenage women end up paying more in 2011 than they were paying insurance companies in 2010 to insure their SUVs?

    Does this new gender-neutral law really screw women in general for life insurance, medical insurance, car insurance, etc.
    Did California women simply overlook this law before it went into effect?

    Additional Comment
    AB 12 allows foster youth to acquire state services until the age of 21.
    Is it a good idea to put your kid out for foster care when she/he graduates from high school.
    With any kind of luck, your neighbor might get paid to take care of your kid between the ages of 18 and 21. Maybe you can get a kickback. Wouldn't that be a kick?

  • Robert E Jensen

    Teaching Case About Return on Investment (ROI)

    From The Wall Street Journal Accounting Weekly Review on October 8, 2010

    CEO Redux Not Always a Hit
    by: Joe Light
    Oct 04, 2010
    Click here to view the full article on WSJ.com
     

    TOPICS: Corporate Governance, Executive Compensation

    SUMMARY: This short article focuses on work by researchers from the IE Business School in Madrid, Spain, and Rouen Business School, France. These management professors compared rates of return on assets for the three years following initial appointment of the company's CEO who was at the helm in 2005. They examined differences in this performance metric according to whether the CEO had prior experience as CEO versus those who had not; they found consistently poorer results for those CEOs who had prior experience. However, one aspect of the research that is more fully discussed in the online version of the article indicates that the findings may simply serve as a marker of another result: the negative effect of being an ex-CEO disappeared if the CEO spent at least two years with the new firm before being promoted. Ex-CEOs also performed better if they had a long break between CEO positions or repeated as CEO more than twice.

    CLASSROOM APPLICATION: The article may be used to identify an unusual use for ROA, a financial statement ratio typically studied in financial accounting and MBA classes. The article also is useful to help students understand the nature of academic research.

    QUESTIONS: 
    1. (Introductory) What were the overall findings in the study that is being reported in this article?

    2. (Advanced) How is return on assets calculated? How do you think these researchers could control for industry performance so that "CEOs wouldn't get an unfair advantage from a soaring sector"?

    3. (Introductory) How do the researchers explain their results?

    4. (Advanced) Are you surprised by these research results? Explain your response, considering the expertise that should be used in searching for and hiring a CEO
     

    Reviewed By: Judy Beckman, University of Rhode Island
     

     

    "CEO Redux Not Always a Hit,"  by: Joe Light. The Wall Street Journal, October 4, 2010 ---
    http://online.wsj.com/article/SB10001424052748703431604575522362723091490.html?mod=djem_jiewr_AC_domainid

    For chief executives, past experience doesn't necessarily lead to future success.

    A new study found that CEOs who have previously held other CEO posts actually perform worse than people who have never been CEO, judging by a key metric.

    The study looked at chief executives who led S&P 500 companies in 2005 and analyzed their companies' returns on assets in the first three years after their appointments. It was conducted by Professors Monika Hamori of IE Business School in Madrid and Burak Koyuncu of Rouen Business School in Rouen, France.

    To measure CEO performance, Mr. Koyuncu and Ms. Hamori focused on companies' returns on assets—the ratio of net income divided by total assets, which is commonly used to compare company performance in academia. In theS&P 500 sample, 98 CEOs had prior CEO experience. Those repeat CEOs earned a median annual average return on assets of 3.92% in the first three years of the CEO's tenure.

    Companies with a CEO who hadn't been a chief executive before saw a 5.4% return. The negative effect gets even worse if the CEO transitioned from a similar-sized company or one in the same industry. Same-industry repeat CEOs saw a median return on assets of 3.1%, and CEOs from similar-sized companies had a median return of 2.94%.

    Ms. Hamori and Mr. Koyuncu factored in how well their industries as a whole performed so CEOs wouldn't get an unfair advantage from a soaring sector.

    The findings don't necessarily mean that prior CEO experience hurts performance. A second-time CEO is generally someone who is coming from outside the company, while first-time CEOs are a mix of both insiders and outsiders. Other research has shown that internally promoted CEOs tend to outperform outsiders. So the problem may be that the person is an outsider, not that he or she has been CEO previously.

    "When you bring in CEOs from the outside, they think outside the box but are less familiar with what works and what doesn't work within the firm," says Nandini Rajagopalan, a business management professor at the University of Southern California, who has researched the insider-outsider phenomenon.

    Mr. Koyuncu found that the negative effect of being an ex-CEO disappeared if the CEO spent at least two years with the new firm before being promoted. Ex-CEOs also performed better if they had a long break between CEO positions or repeated as CEO more than twice.

    Still, Mr. Koyuncu thinks repeat CEOs might underperform because they mistakenly think they can apply many of the methods they used in their former job to their new one.

    "Every CEO job and company is different from the previous one," he said. "You can't just transfer learning between the two."

    Bob Jensen's threads on Return on Investment ---
    http://www.trinity.edu/rjensen/roi.htm

     

  • Robert E Jensen

    whereby very, very, very few entertainment products are technically "profitable," even as they earn studios millions of dollars. A couple months ago, the Planet Money folks did a great episode explaining how this works in very simple terms. The really, really, really simplified version is that Hollywood sets up a separate corporation for each movie with the intent that this corporation will take on losses. The studio then charges the "film corporation" a huge fee (which creates a large part of the "expense" that leads to the loss). The end result is that the studio still rakes in the cash, but for accounting purposes the film is a money "loser" -- which matters quite a bit for anyone who is supposed to get a cut of any profits.

    For example, a bunch of you sent in the example of how Harry Potter and the Order of the Phoenix, under "Hollywood accounting," ended up with a $167 million "loss," despite taking in $938 million in revenue. This isn't new or surprising, but it's getting attention because the income statement for the movie was leaked online, showing just how Warner Bros. pulled off the accounting trick:

    Hollywood Accounting

    In that statement, you'll notice the "distribution fee" of $212 million dollars. That's basically Warner Bros. paying itself to make sure the movie "loses money." There are some other fun tidbits in there as well. The $130 million in "advertising and publicity"? Again, much of that is actually Warner Bros. paying itself (or paying its own "properties"). $57 million in "interest"? Also to itself for "financing" the film. Even if we assume that only half of the "advertising and publicity" money is Warner Bros. paying itself, we're still talking about $350 million that Warner Bros. shifts around, which get taken out of the "bottom line" in the movie accounting.

    Now, that's all fascinating from a general business perspective, but now it appears that Hollywood Accounting is coming under attack in the courtroom... and losing. Not surprisingly, your average juror is having trouble coming to grips with the idea that a movie or television show can bring in hundreds of millions and still "lose" money. This week, the big case involved a TV show, rather than a movie, with the famed gameshow Who Wants To Be A Millionaire suddenly becoming "Who Wants To Hide Millions In Profits." A jury found the whole "Hollywood Accounting" discussion preposterous and awarded Celador $270 million in damages from Disney, after the jury believed that Disney used these kinds of tricks to cook the books and avoid having to pay Celador over the gameshow, as per their agreement.

    On the same day, actor Don Johnson won a similar lawsuit in a battle over profits from the TV show Nash Bridges, and a jury awarded him $23 million from the show's producer. Once again, the jury was not at all impressed by Hollywood Accounting.

    With these lawsuits exposing Hollywood's sneakier accounting tricks, and finding them not very convincing, a number of Hollywood studios may face a glut of upcoming lawsuits over similar deals on properties that "lost" money while making millions. It's why many of the studios are pretty worried about the rulings. Of course, these recent rulings will be appealed, and a jury ruling might not really mean much in the long run. Still, for now, it's a fun glimpse into yet another way that Hollywood lies with numbers to avoid paying people what they owe (while at the same sanctimoniously insisting in the press and to politicians that they're all about getting content creators paid what they're due).

    Bob Jensen's threads on case learning are at
    http://www.trinity.edu/rjensen/000aaa/thetools.htm#Cases

    Bob Jensen's threads on return on investment
    http://www.trinity.edu/rjensen/roi.htm

  • Robert E Jensen

    What's new on MAAW?
    Multiple Choice Questions for Management Accounting
    James Martin added a summary page of links to multiple choice questions for 14 management accounting topics at http://maaw.info/ManagementAccountingMCQuestions.htm