Harry Potter and the Order of the Phoenix almost made a billion dollars worldwide, but Warner Bros. reported a loss of earnings due to creative accounting.

Harry Potter and the Order of the Phoenix nearly hit the $ 1 billion mark at the worldwide box office, but Warner Bros. reported a loss in earnings from the 2007 film. The fifth installment of the Harry Potter The franchise ranks fourth among the series’ top box office artists, behind only both. Deathly Hallows tickets and Harry potter and the Philosopher’s Stone. Despite achievements in gross theatrical, Warner Bros. decided to go with a creative but controversial accounting technique.

Based on JK Rowling’s 2003 novel of the same name, Harry Potter and the Order of the Phoenix followed Harry’s fifth year at Hogwarts. Members of the Order of the Phoenix realized how oblivious the Ministry of Magic was upon Lord Voldemort’s return. Meanwhile, Harry and the rest of the Hogwarts students were forced to deal with the new Defense Against the Dark Arts teacher, Dolores Umbridge. To further prepare for what was to come, Harry and his friends founded “Dumbledore’s Army”, a secret group that trained in defensive spells.

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Total, Harry Potter and the Order of the Phoenix made around $ 942 million worldwide, making it the second highest grossing film of 2007, right behind Pirates of the Caribbean: At World’s End. With a budget in the region of $ 150-200 million, it was assumed that Warner Bros. made big profits in the fifth Harry Potter movie, but that was not the case. According to leaked financial documents (via Term), the studio reported a loss of more than $ 167 million on the film. While any feature film racks up significant expenses, it’s hard to believe that a movie that grossed close to a billion dollars worldwide would be in the red. But it all came down to Hollywood accounting.

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Harry Potter and the Order of the Phoenix is ​​an excellent example of Hollywood accounting

Harry and Neville Dumbledore's Army

Hollywood accounting, also known as Hollywood accounting, is a film industry financial method used by studios to inflate expenses in an effort to reduce net profits. This, in turn, reduces the amount that corporations must pay in taxes, royalties, and profit-sharing agreements. At Warner Bros. and Harry PotterIn the case of this study, the study claimed that they spent huge fees on distribution, advertising, and printing, resulting in a loss of $ 167 million. They also reported an interest rate of $ 60 million, which was a much higher rate than the industry average. Essentially, this method hurt the cast and crew who were willing to earn percentages of the net winnings, considering Warner Bros. inflated fees, so there were no winnings to share.

The method used by Warner Bros. in Harry Potter and the Order of the Phoenix It certainly wasn’t the only known example of Hollywood accounting. Lucasfilm did something similar with Return of the Jedi. A few years later, Paramount Pictures reported Coming to america It did not make a profit, which led to a lawsuit from the writer Art Buchwald. Stan Lee also filed a lawsuit against Marvel when he failed to get his agreed-upon share of profit despite Spiderman‘s $ 800 million in revenue in 2002. Most recently, Universal Pictures claimed a loss of $ 87.8 million for its romantic comedy, Yesterday, despite earning $ 153 million compared to a budget of $ 26 million. The method can be daunting for cast and crew members, but the accounting technique doesn’t seem to be going away.

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