Paper: The Secret Enemy of Hollywood Accounting
Hollywood is notorious for generating an absurd amount of paper. Seriously, we’re drowning it.
Like most industries that began before the digital era, we used paper because we had to. It was a natural function of business. There’s a lot to document on a film production and a lot of people who need to see it.
Take the script, for instance. It comes with supplementary documents with breakdowns for each department. The ADs, props, wardrobe, physical effects, and a half dozen other departments need to know what the script means to them. A 50-page script could have 200 more pages of a breakdown and one line schedule by the time it’s expanded with everyone’s instructions. Now multiply that by about 150 – the number of copies to disseminate that information to the appropriate crew.
That’s just the script. Paper records from human resources and accounting can easily dwarf the script.
Hollywood is notorious for generating an absurd amount of paper. Seriously, we’re drowning it.
Production companies are the big culprit. They use reams of paper in a demonstrably inefficient way. So why do they create so much bloody paper?
3 Reasons Production Companies Generate So Much Paper
Production companies generate paper due to three main factors: IP law, theft, and the IRS.
1. Intellectual Property Law is… Complex
The very nature of film and television production creates a lot of intellectual property.
Whenever someone who works on a production creates something, they generate a copyright. When a writer edits a script, that’s a copyright. When an actor performs in front of a camera, that’s a copyright. When a designer fiddles with a costume, that’s a copyright. Multiply that by 150 or 200 people every hour.
(Not everyone creates IP, of course. The grip who moves walls around doesn’t generate copyrights, for instance.)
According to US law, the person who creates the copyright owns it unless they transfer it away. Since the production company needs to own that IP, it needs a works made for hire clause in the employment agreement with everyone who works on the production. This way the company owns every copyright that’s generated.
There are legal procedures for how you transfer copyrights to the production staff, but they create a lot of paper. So those clauses turn simple employment contracts into sprawling documents or 2 sheets of paper, printed on both sides, in 8 point type that is so small only Buggs fucking Bunny can read it (because he eats all the carrots). Have you actually ever read that noise?
2. Good Old Fashioned Larceny
An executive at Disney once said to me:
“Tim, there’s a certain amount of larceny that just happens in film production. It’s part of the job. It’s part of making movies. Our job, as production accountants, is to keep it to a minimum, and to try to eliminate as much of it as we possibly can.”
Truthfully, employees steal (maliciously or otherwise) in every industry, but the film industry’s fast-paced, cash-heavy model makes it particularly vulnerable.
In some cases, it’s simple and innocent: A set decorator buys herself lunch with petty cash whens she wasn’t supposed to. It’s technically theft, but it might be an honest mistake.
In other cases, it’s really fucking overt. In one case, I know of a producer who tried to turn in an invoice for a $12,000 paint job for his Porsche. He wanted the production company to drop $12K on his car because… who knows why.
Naturally, production companies and studios want to eliminate that shit as much as possible.
How do you trust people with money and prevent theft? Documentation.
Production companies generate a lot of paper just proving the validity of the things they buy. Receipts, invoices, and reports pile up every time someone needs to buy a can of paint or a tank of gas.
3. The IRS Wants Proof
Like any other business, a production company needs to file a tax return each year.
The company has two concerns here:
Account for all expenses so it can write them off. This is no small task. When you have six to eight departments of people spending cash every day, there are a lot of individual costs to record. Spend $1.35 on a pack of screws? Document it for the tax man.
Document expenses so it has proof in case the IRS audits. If the IRS audits the production company (which isn’t uncommon – production companies are audited at a higher rate than the average), the company needs to show proof of every penny it spent and proof that the expense was essential.
If expenses are logged for write-off and defended as legitimate, the tax profile of the company could change and end up costing money. But that means generating a lot of paper.
What Happens with all that Paper?
We shove it in boxes and bury it in a cave.
No, seriously. That’s how it works.
A production company divides its paperwork into categories and files it into bankers boxes. These glamorous things.
They’re typically split into three categories:
- Vendor files: Everything relating to services purchased.
- Petty cash: Envelopes with tons of receipts that explain why someone spent cash. On a basic $5 million picture, these receipts could account for spending of $25,000 to $35,000 per week.
- Employee files: Start slips/packetes and time cards. Everything is kept, whether the employee worked one day or a year.
So how much paper does a production company accumulate? It depends on the size of the production. A picture with 80-130 people, two or three weeks of preparation, 15-20 shooting days, and eight to 12 weeks of post will generate eight to 10 bankers boxes.
Naturally, the amount of paper scales up as the picture gets bigger. Last August, a Sony executive told me that the latest Spider-Man movie created 150 bankers boxes of paper.
Those boxes have to be kept somewhere, of course. It’s not smart to throw records in the trash right away (otherwise what was the point of generating them?), so production companies store them for about seven years. They keep employment records longer due to some state laws.
All this paper can technically be kept anywhere, but many productions use the same place: Underground Vaults & Storage, a storage facility in old salt mines in Kansas.
Why salt mines? The natural temperate and humidity are perfect for long-term storage of film and paper. Once the mine was tapped, apparently somebody thought, “Well, we have this giant fucking hole. Might as well fill it with other people’s crap and charge them.”
Why Aren’t we Digital Yet?
Like anywhere else, there are a lot of people in Hollywood who just don’t like change. It’s a shitty mentality, but that’s how it goes. From my experience, there are four main complaints about digital document systems in production accounting.
They would have to train people for a completely new type of work.
Imagine throwing every process and workflow you use every day out the window. Not only do you have to learn a new system, you also need to teach that to your team. Plus the learning curve is pretty steep if you or your team don’t have a lot of experience with digital systems.
There are some compliance concerns, especially with SOC 1, SOC 2, and Safe Harbour rules.
Locking files in a cabinet is a simple way of saying “My data is safe.” It’s a little more complicated in a digital system, but there are tools (encryption, two-factor authentication, etc.) to protect data.
They don’t want to lose their friends.
They know a digital system will streamline their work. That could mean fewer people working on the production site. It could mean fewer people working at all. They (and the unions) want their friends to keep their jobs.
They want to stick with what they know.
Production accountants have a demanding job. Their work is complicated and laborious. In entertainment, decisions – even financial ones – are made quickly, without the luxury of analysis or stupid meetings. They’re under enough stress. They don’t want to relearn everything they know.
Forgive the generalization, but finance people aren’t people-people. They like to follow the rules. They want to stick to their checklists and envelopes unless there’s clear incentive to change.
Digital Systems are the Future
Digital accounting tools make your life easier in several ways:
- Your life will be less driven by location. You can perform the job wherever you are. You may not even have to travel with the production.
- You can perform complex tasks faster so you can focus on better, more creative work. Imagine what you could do with your time if you didn’t have to decipher people’s handwriting on the back of envelopes.
- You can streamline your work. You don’t have to fire anyone, but you could if you wanted.
- You’ll have an easier time storing files. No more underground caves in Kansas. Data is far cheaper to store than physical boxes.
- Global data processing – with the shooting company on location, process AP, PC and POs from anywhere in the world wearing bunny slippers and a red silk house coat with a dragon embroidered on the back.
I’ve spoken with executives at Viacom, Fox, Sony, and dozens of small production companies. They all say the same thing:
“We know digital is coming. We know corporate will force wholesale change on us. We can’t convince on-the-ground production accountants to make the change.”
Thinking of switching to a digital document management system? Make sure it comes with these critical features.
If you’re one of those accountants who resists digital systems, know that one day the “suits” are going to tell you to use some new tool or work somewhere else. That day is coming faster than you realize.
Instead of letting some C-suite asshole or vice president of who-knows-what (who only just started shaving) tell you which bullshit software to use (which probably won’t meet your needs), isn’t it better to adopt one yourself now so you can use a system that’s designed for production accounting.
Paper is your enemy. It’s a crutch. You can banish a whole lot of stress from your life by defeating it quickly.